Please consider China Raises Interest Rates to Counter Inflation Pressure
The benchmark one-year lending rate will increase to 6.31 percent from 6.06 percent, effective tomorrow, the People’s Bank of
The move comes as a surprise to some, after Credit Suisse Group AG, Morgan Stanley and Bank of America-Merrill Lynch said officials may pause in tightening. While
It’s “very significant” that China raised rates before the March inflation data has even been announced, said Shen, a Hong Kong-based economist at Mizuho Securities Asia Ltd. who formerly worked for the International Monetary Fund and the European Central Bank. “This is a good preemptive move.”
Premier Wen last month described inflation as “a tiger” that once set free will be difficult to cage, and also as a potential threat to social stability. “Exorbitant” house price increases in some cities are a top public concern, he said.
Today’s announcement contrasted with central bank Deputy Governor Yi Gang saying March 23 that interest rates were at a “comfortable” level and that he was “not too worried” by inflation because price increases will slow in the second half of the year.
Via Email update, Nouriel Roubini sent out a note regarding
Once increasing fixed investment becomes impossible—most likely after 2013—
Medium Term Deflationary
Interestingly, Roubini concludes "
When viewed from the point of destruction of credit and the wiping out of malinvestments especially in the property sector, I would agree.
The question is how Chinese officials respond and to what degree.
As noted in Hidden Losses and Little Reform; China May Be Slowing More Than You Think, Pettis thinks a slowdown in
One difference is that Pettis is not convinced of a "hard landing".
On this score, I side and have sided with Roubini. The case for a "hard landing" is sound. Can anyone cite any instances when there has been this much malinvestment where there has not been a hard landing?
How Will Rate Hikes Affect
In early February I was wondering How will Rate Hikes Affect China's Stock Market and Property Bubbles?
Something has to give. Can
Michael Pettis at China Financial Markets expects the Chinese stock market to be firm until President Hu Jintao and Premier Wen Jiabao retire next year.
I am not so sure. It is quite possible a series of hikes weighs on the market. Besides, stock market rallies per se will not help
When Do Imbalances Matter?
At some point,
Will the stock market and
I suspect the latter. Moreover, it's entirely possible the series of quarter point baby steps hikes weighs on the equity markets sooner than expected, especially if the frequency of those hikes increases faster than expected, even if credit growth continues unabated.
I spoke about a Chinese hard landing in February in Speculation, Investment Scandals, Fraud, and China's Hard Landing; Miracle of Chinese High-Speed Rail will be Reduced to Dust; Peak Oil Doomsday Clock. Inquiring minds will want to take a look.
In case you missed it, also consider World's Biggest Property Bubble: China's Ghost Cities Revisited; 64 Million Vacant Properties.
The video in the link immediately above is a "must see".
Those who believe or hope
Roubini, Pettis, and I are all guessing as to when these imbalances matter, to what degree, and how hard the landing, but I will leave you with a couple of questions, one I asked earlier: Can anyone cite any instances when there has been this much malinvestment where there has not been a hard landing?
While pondering that question, also ponder the implications for commodities as discussed in Anatomy of Bubbles; Negative Returns for a Decade Revisited; Is Gold in a Bubble?