Derivatives markets suggest slowing monetary tightening, RMB appreciation

Derivatives contracts suggest that China will slow the rate of monetary tightening and renminbi appreciation due to dampening inflation and continued economic woes in the export markets of the US and Europe, Bloomberg reported. Swaps on one-year deposit rates indicate that markets expect no more than one interest rate hike in the coming year, a rate down sharply from the five increases over the past 10 months. Non-deliverable forward contracts on the renminbi closed at just 0.8% premium to the current spot rate, the lowest since a de facto currency peg to the US dollar ended in June of last year. Chinese policymakers have been forced to balance between controlling the country’s rising inflation, which hit a three-year high of 6.4% in June, with the need to avoid sending the economy into a “hard landing.”