China Interest Rate Hike

Submitted by Craig Strzelecki on 2 May, 2006 - 09:02

China hiked up their benchmark interest rates to 5.85 per cent last week, to rein in growth and inflation. Foreign Banks applauded Chinese interest rate hike as emblematic of China’s broader effort to allow market forces to play a larger role in the economy. However there is still that Chinese RMB to US dollar peg that severely constrains their ability do conduct monetary policy. The Chinese may need to release the US dollar peg, allowing the Yuan to appreciate at a faster pace to prevent an influx of speculative capital.