Just as I pressed send in my prior mail China hiked interest rates to the surprise of the market, as is the PBOC's way.
This is not a shock to the market. Interest rates need to rise to effectively slow the Chinese economy and make it worth while for savers to keep their money in the bank rather than invest it in China's overheating property sector. Rates are still at a low level even after this hike, and more will be necessary in the coming months.
The move has impacted asset markets, the Aussie dollar has fallen due to its proximity to China and reliance on Chinese growth to fuel its exports sector. It dropped 40 points on the news to 1.0040.
Stocks are relatively unchanged, as is oil.
We believe it will be difficult for them to muster much bullish sentiment today, as it shows that the Chinese authorities are committed to keeping a lid on inflation. However, they are embarking on a very slow, steady hiking cycle and its worth pointing out that real interest rates in China are still negative.
That's 2 months and 2 hikes- will this be the pattern of PBOC in the future - we shall have to wait and see.
At this stage of China's tightening cycle today's hike shouldn't really be that much of a surprise to the market and should only have a limited effect on asset prices.
Kathleen Brooks| Research Director UK EMEA | FOREX.com
d: +44.(0).20.7398 5024 | f: +44.(0).20.7929.2010 | e: email@example.com| w: www.forex.com/uk
12 Camomile Street | 9th Floor | London EC3A 7PT
Now you can follow us on Twitter: http://twitter.com/forexresearch
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.