Tags: China | Faster | Inflation | Fuels Speculation | Rate | Rise | Imminent

China’s Faster Inflation Fuels Speculation Rate-Rise Imminent

Friday, 12 Nov 2010 07:24 AM

China’s central bank may raise interest rates within weeks after inflation accelerated to the fastest pace in 25 months in October, a Bloomberg News survey of economists showed.

The benchmark one-year lending rate will rise to 5.81 percent by year-end from 5.56 percent, according to the median forecast of 11 analysts polled after yesterday’s price data. The deposit rate may climb to 2.75 percent from 2.5 percent, the survey showed.

China’s benchmark Shanghai Composite Index slid 2.6 percent as of the 1:01 p.m. local time break in trading on speculation that officials could move as early as today or this weekend after increasing banks’ reserve requirements on Nov. 10. Higher rates could complicate government efforts to limit gains in consumer and property prices by luring more money to the fastest-growing major economy.

“We know there’ll be more tightening given how inflation has accelerated and home prices haven’t come down, but the sudden talk that there may be an interest-rate hike as early as the end of today really spooked the markets,” said Mark Tan, who helps oversee $12 billion at UOB Asset Management Ltd.

Goldman Sachs Group Inc. said yesterday that October’s economic data indicated Chinese growth was “firm” and more “policy tightening” is needed.

Industrial & Commercial Bank of China Ltd. and China Vanke Co. led lenders and property developers lower as the benchmark index fell the most in three months.

Reserve Requirements

Price pressures in China’s economy may be exacerbated by the nation’s currency curbs and imbalances in trade and capital flows that Group of 20 leaders are meeting in Seoul to tackle. The central bank announced a 0.5 percentage point increase in lenders’ reserve requirements this week after the customs bureau reported that October’s trade surplus surged to $27.1 billion.

Some lenders including Bank of Communications Co., had an additional increase, meaning their requirements rose a full percentage point, two people with direct knowledge of the situation said yesterday.

Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong, said yesterday that more interest-rate increases are “clearly on the way.”

The central bank raised rates last month for the first time since 2007 as part of an exit from crisis policies that included scrapping in June the yuan’s peg to the dollar.

A record expansion in lending has added to concern that China’s inflation, now centered on food costs, will broaden. In October, new lending was a more-than-forecast 587.7 billion yuan ($89 billion), a central bank report showed yesterday.

While the latest inflation number was above all 28 estimates in a Bloomberg News survey of economists, it matched rumors cited before the data by firms including Guoyuan Securities Co. in Shanghai.

“There’s talk of an interest-rate hike over the weekend,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “It’s quite possible given how inflation has accelerated.”

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China s central bank may raise interest rates within weeks after inflation accelerated to the fastest pace in 25 months in October, a Bloomberg News survey of economists showed.The benchmark one-year lending rate will rise to 5.81 percent by year-end from 5.56 percent,...
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2010-24-12
 

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