- China has its own liquidity management issues
- Managing capital flows key to PBOC policy
The Chinese People's Bank of China (PBOC) will not necessarily follow the Federal Reserve's overnight rate hike in the near-term as the world' second largest economy seeks stability ahead of a leadership reshuffle this fall, observers said Thursday.
"As a trend basis, if the Fed continues on the normalization cycle, then one would envisage that the PBOC would move in sync. But right now, I don't think it will trigger any immediate follow suit type of tightening," said Mizuho Bank senior economist, Vishnu Varathan.
"I think what the PBOC is really watching is their own money market needs and and they are going to pair it with how they're looking at credit overall, in particular the shadow banking space," he added to CNBC's The Rundown.
On Wednesday, the Federal Open Market Committee increased its benchmark target a quarter point.
China's benchmark lending rate has not changed in almost two years, but the central bank surprised markets in March by raising short and medium-term interbank rates hours after the last Fed hike.
This time however, the Chinese government however is likely to strive to keep economic conditions stable going into a Communist Party meeting this fall where a leadership reshuffle will take place.
"They want 'Goldilocks' liquidity, they want a very stable ideally against dollar and trade-weighted basis ... so they are not tightening yet," said Mizuho's Varathan .
On Thursday, the PBOC left interest rates for open market operations unchanged, Reuters reported.
East Springs's client portfolio manager, Sarah Lien, said any move by China is likely to be very "measured and responsive."
"China has its own agenda. It's a very important year in China; it's a big political year, they're very careful not to derail the economy and to make sure that things tick along very smoothly," she told CNBC's "Squawk Box".