Why the PBoC Raised Rates

March, 2017

Diana Choyleva, Chief Economist at Enodo Economics, commented on the People's Bank of China raising interest rates today..

'As you know the Pubco raised interbank rates today and most commentary focuses on China following the Federal Reserve in tightening. But the market underestimates the domestic reasons behind the PBoC's tightening bias.

Interbank borrowing and lending has skyrocketed in the past 2 years and non-bank financial institutions are now the largest net borrowers by far. With Beijing focused on reining in financial risks this year and cost-push inflation filtering through to consumer prices, markets should expect tighter policy as well as accidents and a lot more volatility.'