Archive - Jun 14, 2011 - Story

When we reported last night's Chinese economic data dump we said: "Expect to see renewed calls on the PBoC to hike rates imminently." As it occasionally happens, we were rather spot on: per Bloomberg: "China ordered lenders to set aside more cash as reserves after inflation accelerated to the fastest pace in almost three years in May and industrial production rose more than estimates. A half percentage point increase announced by the central bank today and effective June 20 will take the ratio to a record 21.5 percent for the nation’s biggest lenders. The move was hours after data showing the annual inflation rate climbed to 5.5 percent." As we noted last night after reporting the latest Chinese data, while the economy is once again heating up, risks of outright stagflation have been reduced now that various other metrics aside from inflation also beat expectations, putting the onus squarely on the PBoC. And the central bank did not disappoint. That said, since the RRR-hike route has taken China nowhere fast, and with inflation at a 3 year high, the PBoC's next decision of an outright rate hike will be far more complex: "Signs the world’s second-biggest economy is maintaining momentum after increases in borrowing costs and curbs on real estate may have encouraged policy makers to add to tightening measures. At the same time, weakness in the global economy and data yesterday showing slower bank lending and money-supply growth may make a decision on further raising interest rates a tougher call." In this case, we expect to see doctored CPI data to begin dropping in June and onward, unless there is another climatic disaster which really sends the angry mobs loose.

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