Policy normalisation has run a long way already in China. Interbank rates have returned to near pre-pandemic levels. Credit growth has slowed. And a PBOC survey published yesterday signals that last year’s loosening of bank lending criteria has been fully reversed. What hasn’t happened though is any increase in the PBOC’s policy rates. That divergence between policy rates and monetary conditions reflects institutional constraints on the PBOC and the leadership’s economic priorities. We had expected (limited) policy rate hikes this year, but they no longer seem likely during this cycle.
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