People's Bank signals intent to "normalise" policy

The Q3 monetary policy report published earlier this week is the first formal policy statement from the People’s Bank (PBC) since interest rates were hiked a fortnight ago. In it, the PBC mentions a desire to “normalise” monetary policy. This implies that further rate moves could follow fairly soon. With inflation likely to reach 4%, if only briefly, there may be room for another move in coming weeks, but we suspect it will be delayed until late in Q1 next year. In fact, we have pencilled in only two rate moves in total in 2011. Policy normalisation is likely to be more visible on other fronts, particularly loan growth, which should slow, and interbank rates, which are set to continue rising.