China will raise one-year deposit and loan interest rates by 27 basis points to 3.6 percent and 7.02 percent respectively as of Aug. 22, the central bank announced on Tuesday...
The move aims to control fast credit growth and curb the hovering risks of inflation, the People's Bank of China (PBoC) said in a statement on its Web site.
The Chinese authorities may also be worried about the surge in asset prices. From Bloomberg:
"This is a reflection of the central bank's concern about inflation and asset bubbles,'' said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong...
"This is targeted at slowing the money flowing into the stock market," said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. "As the bubble gets bigger, the chance of it bursting is also bigger."
If too much money in China is fuelling asset bubbles, William Pesek thinks the Fed and the BoJ may be partly to blame.
What's conveniently overlooked about Greenspan's 1987-2006 tenure is his role in China's asset bubble and, by extension, Asia's. Greenspan's policy of keeping interest rates unusually low in the first half of this decade fueled speculation in high- risk assets. That led to a cheap-capital-fueled investment bubble in China...
Low U.S. rates complemented zero rates in Japan. Today, as the BOJ begins a two-day policy meeting, the odds are extremely low that Fukui will boost rates from 0.5 percent. That may be a green light to investors to continue borrowing cheaply in yen and moving those funds overseas into riskier assets. The so- called yen-carry trade is feeding bubbles globally.
To be fair, the Fed and the BoJ were only trying to solve their own domestic problems, although they arguably overdid the monetary easing. China could have insulated itself better if it had allowed its currency to appreciate/revalue.
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