Falling consumer and wholesale prices may cause the nation's central bank to raise interest rates in smaller increments, the JP Morgan Chase Bank said in a report yesterday.
For the first time in four years, the Central Bank of China on Sept. 30 lifted its benchmark rediscount rate by an unexpected 0.25 percentage points to 1.625 percent, from the historical low of 1.375 percent, in an effort to avert inflation.
As last month's CPI rose 1.49 percent, slower than October's revised 2.37 percent growth, JP Morgan revised its interest rate forecasts. The bank now expects the central bank to lift the rediscount rate by the end of this month by 0.125 percentage points, instead of its previous forecast of 0.25 points.
Inflationary pressure and the negative real interest rate have started to correct, said Grace Ng (
"As the recent capital inflows into the region will likely last for the coming quarters given the bank's view on the Chinese yuan's appreciation, leading to further appreciation pressure on the regional currencies including the New Taiwan dollar, concerns over the widening interest rate gap against the US dollar should also be relieved somewhat," Ng said.
Through the course of next year, JP Morgan expects the central bank to lift the rediscount rate by another 0.625 percentage points in total, down from a previous forecast of a 1 percentage point hike.
In comparison, it forecasts the US Federal Reserve will make a 0.25 percentage point increase on Dec. 14, with an overall increase of 2 percentage points expected for next year.