Chi Lo, CEO of HFT Investment Management (Hong Kong) expects the PBOC to be much more hawkish on both reserve ratios and interest rates. "For the RRR, there is still room for another three to four more hikes, and for interest rates, probably two hikes in the first half of the year." Click here for full interview.
The key to keeping inflationary expectations under control, he said, was to bring food prices down on a consistent basis. One way was through price controls. The other, by increasing agricultural supplies, both of which Beijing has been doing.
Andrew Freris, Senior Investment Strategist for Asia at BNP Paribas Wealth Management pointed out that with China's real deposit rates still in negative territory, he says another three 25 basis point hikes are "virtually guaranteed." China's one year benchmark deposit rate currently stands at 3 percent, while its inflation rate is at 4.9 percent.
Both Lo and Jackson also see China using its currency as a tool to battle inflationary pressures. According to RBC's Jackson there is "plenty of scope for further gains [in the yuan] over the rest of the year", as concerns about inflation "trump concerns about exports". He expects the yuan to "strengthen to 6.20 versus the U.S. dollar by the end of the year."
Lo thinks the yuan will continue to appreciate for another two years, but at a "tolerable level."
"I think they won't go too fast, about 5, 6% a year is probable." he said.