Don't expect any dramatic rate hikes from China: StanChart

Excerpts from Your World at 10 on CNBC-TV18 Watch the full show » RELATED NEWS China faces yuan pressure, hot money risk BMO Capital Markets eyes China, India growth China banks need $73bn capital in 2010: Regulator Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

Global markets briefly went into a flutter yesterday when the People's Bank of China, that is the Chinese Central Bank, sent out a monetary tightening signal by upping its short-term inter-bank rate for the first time in five-months. Although the hike was miniscule mere four basis points, does it signal hardening of policy rates in China? Is the rate curve finally turning?

In an interview with CNBC-TV18, Alex Barrett, Global Head - Client Research at Standard Chartered said the rate hike was as per expectations. "We have got probably a couple of rate hikes towards the second half of the year."

However, Barrett does not expect any dramatic tightening from China this year. "We are expecting still the loan growth to be very strong for the first quarter and we are certainly not expecting the Chinese to tighten the policy too much. But this is a nice little signal from them to keep people calm."

Below is a verbatim transcript of the interview. Also watch the video.

Q: What did you make of yesterday's move by the People's Bank of China (POBC)?

A: We were a little bit surprised about the timing but we are expecting them to tighten rates at some time during this year. This is a very small move initially but it does give a bit of an indication. Probably the markets may overreact a little bit but we have got probably a couple of rate hikes towards the second half of the year that we are expecting to come in. But we are not expecting a dramatic tightening from China this year.

Q: But would that change at all after yesterday's move? Do you think yesterday's move was an omen of further tightening to come in the next six-months or so?

A: We think the tightening for the next six-months would be a very minimal but will be very minimal but if anything this maybe is just a signal for people not to get a bit too carried away. Certainly, markets have done very well last year and maybe a little bit of euphoria was building into the markets. The Chinese authorities wanted to just put down the market to say, "Don't get too carried away. We are going to have to take some of the stimulus back, tighten up rates towards the end of the year. And don't get too carried away at the beginning of the year."

We are expecting still the loan growth to be very strong for the first quarter and we are certainly not expecting the Chinese to tighten the policy too much. But this is a nice little signal from them to keep people calm.