China's interest rate rise - one off or more to come?

Updated: 2010-10-22 17:13
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BEIJING - With September's inflation gauges on the rise, China's central bank on Tuesday raised interest rates for the first time in almost three years.

But will the quarter of a percentage point hike be enough to keep prices in check or will further increases be necessary.

Leading economists and institutions gave Xinhua their take on the situation:

Wu Xiaoling, deputy chairwoman of the Financial and Economic Committee of the National People's Congress, China's top legislature:

By raising interest rates, China's central bank was sending the market a signal of its intent to manage inflation expectations and return to a prudent monetary policy, but that does not mean China has stepped into the cycle of further rate hikes.

Further interest rate increases would widen the interest rate differences between China and the rest of the world, cause the international speculative capital, or the "hot money," to flood in and increase the pressure on the renminbi, China's currency, to appreciate.

HuaAn Fund Management Co:

There might be another one or two interest rate hikes in the near future, but China is not likely to enter a cycle of rate rises under the great pressure of renminbi appreciation.

China's real economy is currently not strong enough to stand consecutive interest rate rises.

Bank of Communications Schroder Fund Management Co:

The interest rate hikes are not targeted at restraining continuously high CPI, but at containing the irrational rises of asset and resource prices, so China is unlikely to enter a cycle of rate hikes.

Li Wei and Stephen Green, analysts at the Standard Chartered Bank (China) Ltd:

The interest rate rise signals the broad ambition of Chinese policy makers to contain asset inflation pressure. It also signals heightened confidence in China's underlying growth momentum. In the near term, the country's policy makers will pause to assess the market reaction, but there will be further hikes at some point, particularly if domestic asset prices continue to rise. Two interest rate hikes are likely in the first half of 2011.

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Wang Tao
, economist with the UBS Securities:

With the interest rate increase, the Chinese government has sent a clear signal that it does care about controlling inflation, which will help anchor inflation expectations. This rate hike is expected to be the first of a series to come, before interest rates are normalized to pre-crisis levels. Three interest rate hikes are expected in 2011.

Chang Jian, economist with the Barclays Capital:

The surprising move of China's central bank reflects the government's determination to stabilize property prices, as well as its decision to use market-based tools to anchor inflation expectations and control rising inflation risks, given persistent negative real interest rates and increased capital inflow pressures.

It may signal the start of a rate hike cycle, but it is still too early to call the timing of next rate hike, as the government is likely to watch for market impact before contemplating its next move.