Asia’s petrochemical markets are expected to come to life as China re-opens for trade, despite the interest rate hike that accompanied its return after a week-long holiday, as per ICIS. Effective Wednesday, the People’s Bank of China raised its one-year deposit and lending rates by 25 basis points to 3.00% and 6.06%, respectively. The interest rate hike, which followed similar moves in October and December, did not come as a surprise to most market players since China has been grappling to rein in inflation. Analysts said two to three more policy rate hikes were likely to be implemented this year, but players in the petrochemical markets were not too worried about the immediate negative implications on overall demand.
Based on China’s GDP, its economic growth depends largely on external demand. Beijing raised the rates to tame inflation. China is now on its second year of curbing lending growth after its aggressive lending stance adopted in 2009 led to the release of a large amount of funds into its financial system, fuelling inflation. However, the resulting increase in China’s borrowing costs might make it difficult for small petrochemical players to get financing for any planned expansion.