Researchers at China’s central bank have agreed that higher interest rates could be appropriate in the near future thanks to improvements in…

Researchers at China’s central bank have agreed that higher interest rates could be appropriate in the near future thanks to improvements in industrial prices and enterprise profitability, according to state media

State-run newspaper China Daily said on Monday that top researchers at the People’s Bank of China had recently agreed that higher rates would “help to squeeze asset bubbles and restrain debt expansion, as a tool to be used with broader oversight of financial activities.”

The paper quoted Ji Min, deputy head of the bank’s research bureau, as saying over the weekend that there “is room for an increase in interest rates in the short term as industrial product prices and enterprises’ profitability have improved since last year”

The state-run daily wrote that a possible hike in interest rates, “along with the key lever of cutting the overcapacity of industrial producers, would further improve producers’ investment returns by curbing debt expansion regardless of the costs of borrowing, according to the officials.”

Yet China’s financial markets and corporations did not stomach the PBoC’s rate hikes as well as their US counterparts last year, according to Trinh Nguyen, Senior economist for emerging Asia at Natixis

Ms Nguyen said in December that the Shanghai 3-month interbank lending rate had “shot up to reflect tighter liquidity and counter-party risks of banks.”

“Chinese stock indices (both Shenzhen and Shanghai) have under-performed not just the US but also the Asia Pacific region due to tight monetary conditions – our Natixis Monetary Condition Index shows that China is amongst the tightest,” she wrote

The PBoC last raised rates for its Medium-term Lending Facility and reverse repos by five basis points on December 14 following an overnight rise of 25 bps by the US Federal Reserve overnight