4 replies to this topic

[Wombat]

http://www.bloomberg...6...&refer=home

Here's the first part:

China Raises Rates to Slow Inflation and Investment (Update2)

By Nipa Piboontanasawat and Janet Ong

March 17 (Bloomberg) -- China raised interest rates for the third time in 11 months to curb inflation and asset bubbles in the world's fastest-growing major economy.

The one-year benchmark lending rate will be raised to 6.39 percent from 6.12 percent, starting tomorrow, the Beijing-based People's Bank of China said today on its Web site. The one-year deposit rate will be increased to 2.79 percent from 2.52 percent. A central bank spokesman confirmed the increases.

[Sentient Being]

With recent shocks to the chinese stock market in mind, do you think this might cause the China market to have another sharp correction?

[Wombat]

With recent shocks to the chinese stock market in mind, do you think this might cause the China market to have another sharp correction?

That's the first thing I thought of unless their growth is so strong that it can withstand the rate increase.

[jmicou]

With recent shocks to the chinese stock market in mind, do you think this might cause the China market to have another sharp correction?

That's the first thing I thought of unless their growth is so strong that it can withstand the rate increase.

Just throwing some thoughts out: It seems the effects of such a move would help abosorb Chinese liquidity, which may dampen commodities, and strengthen the yaun. If so, what magnitude? Given the strength of the market forces in China, this suprise move may be a speed bump. Maybe it will slow the acension of the stock market.

The domestic question is what would the effect be on the USD and its consequences.

Edited by jmicou, 17 March 2007 - 05:44 PM.

[pdx5]

Thanks for posting this news! The Chinese Renminbi and the US $ have a fixed exchange rate, as far as I know. So it should not affect prices of goods imported from China. However it could have the effect of a speed bump for stocks as pointed out above. It does not necessarily mean US $ has to weaken proportionately, however it will put a small pressure on it. The higher the interest rates, the lesser the level of borrowing, and that will reduce liquidity creation, since borrowings are the chief vehicles of liquidity creation.

Edited by pdx5, 17 March 2007 - 11:57 PM.