Wednesday, February 08
Trying to combat inflation in the best way possible, China has raised its lending and deposit rates by 25 basis points each. *The rate hikes will be effective February 9, 2011. One year deposit rates have gone up as well to 3% while one-year lending rates have gone up to 6.06%.
The Chinese stock market, reopening after a weeklong Lunar New Year holiday, was barely changed on Wednesday, as investors shrugged off news of another interest rate increase in China.
The Shanghai composite index, the main market gauge for stocks in mainland China, started the day with a decline of 0.3 percent, but quickly reversed to stand 0.1 percent higher by mid-morning.
This showed that investors are, at least for now, sanguine about the impact of rising inflation in China, despite escalating worries about higher food prices in particular. The U.N. Food and Agriculture Organization issued an alert late on Tuesday that a severe drought was threatening the wheat crop in China, the world’s largest wheat producer, and was even resulting in shortages of drinking water for people and livestock.
Investors largely ignored this, and news of the latest interest rate increase in China, which was also announced late on Tuesday.
The quarter-percentage point bump in interest rates was the third increase in borrowing costs since October and came as little surprise. Many analysts had expected the authorities in Beijing to step up their battle against rising prices with a rate increase around the Lunar New Year holiday.
Though Spot Iron Ore prices in China showed some sign of resistance at remained steady at $192-194/MT for 63.5/63 Fe cargo. Markets were expecting a rally after holidays but it remained constant after Chinese govt hiked up the increased rates.
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