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    China raises interest rates

    Global markets fell back on Tuesday. A factor was the surprise interest rate hike by China of its one year deposit and lending rates by 0,25%. Commodity prices fell, markets traded down and the dollar gained ground against other currencies.

    This was the first hike in interest rates by Chinese authorities in 3 years and suggests that the government is concerned about the massive lending, asset prices moving up and high inflation, which for August was interestingly at the same rate for South Africa, i.e. 3,5%

    The table below reflects Chinese official interest rates from 2000, just prior to the rate hike today.

    The 0,25% rate hike takes the lending rate from 5,56% and the one year deposit rate to 2,5%.

    China’s effective currency peg to the dollar and large trade surplus with the rest of the world has allowed it to amass growing foreign exchange reserves. In October 2006 China’s foreign exchange reserves exceeded $1 trillion for the first time. This grew to $2 trillion in April 2009 and in the latest September 2010 numbers released last week, reserves increased by their largest amount ever - $194 billion to $2,65 trillion.

    The rand lost ground against a strong dollar today. It was last at R6,98. The chart below reflects the US dollar index, which is the US dollar against a trade weighted basket of currencies.

    Global monetary policy is now a huge factor in global asset prices.

    Kind regards

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2010-10-19, 17:16:02, by ian Email , Leave a comment
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