China's Christmas Present To The World: Another Interest Rate Hike

Tyler Durden's picture

Following Friday's failed 3 Month Bill auction, things in China are once again getting interesting, just as the rest of the world has decided to sleep right into 2011. The PBoC, in a surprise move, hiked its lending and deposits rates by 0.25%, the second time the bank has done so since October 19, when its then-raise was the first in 3 years. And by all accounts the PBoC is not done: consensus is for three 25 bps moves by the end of 2011: that the PBoC is starting early may be an indication that the country is starting to seriously worry about its soft landing prospects. Yet one thing that is certain is this move cements the CNYUSD peg: despite all the rhetoric, China will keep the currency peg come hell or high water, as it eliminates any monetary trump card Bernanke may have (just as Germany loves being part of the EUR which has such insolvent countries as all PIIGS members backing up the rear). What is unclear is whether the PBoC has now decided to avoid the RRR hike path as the preferred approach to combating inflation. It is assumed that his action will have a soothing impact on the Chinese 7 and 30 Day Repo rates come Monday, as else more failed bond auctions are certain to be in store for Shanghai in 2011.

From the just released PBoC statement:

The People's Bank of China, starting December 26, 2010 has raised the financial institutions' benchmark deposit and lending rates. The one-year deposit and lending rates by 0.25 percentage points, respectively, other deposit and lending interest rate adjusted accordingly (see table). - Full release link.

And the biggest irony is that as China turns off the liquidity spigot, and the hot money follows the path of least resistance in a world of connected liquidity vessels, we expect that commodity prices in the US will jump that much higher, as the speculators slowly abandon the SHCOMP and related exchanges and bring their full sound and fury on fertile for manipulation US soil.

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David99's picture

China's central bank raises interest rates again

China's central bank will raise the one-year lending and deposit interests rate by 25 basis points from December 26, the second time in 2010.

 

Plunge and big one this time

 

theXman's picture

0.25% is too small to be of any significance other than symbolic. It actually signals to the world that the Chinese government has no resolve to fight inflation.

I think Chinese stock market will rally big time on Monday.

Spitzer's picture

right

they think they will not have to revalue but they will soon find out that combating 5 or 6% inflation requires 8% interest rates.

revaluation is coming

Mr Lennon Hendrix's picture

I would like to see the globalists try to implement a new currencie system.  'The old monetary system didn't work, but this one will, trust us!'

dognamedabu's picture

Coming from Canada I can say with 100% certainty, we do not want to have an Amero. In fact some of us do not even want our own paper dollars. Real money, gold & silver, or go home.

 

 

velobabe's picture

oh, happy B-day D O G, your one day old. you must be jesus†

deez nutz's picture

after reading this article in the CBC I would say "beggar thy neighbor, beggar my neighbor: Canada"

http://www.cbc.ca/fp/story/2010/12/17/3993060.html 

Atomizer's picture

SilverBaron. No.

The plot is deeper. New countries have not been fleeced. The fortunes are too great for one to turn a blind eye.

http://www.un.org/en/sc/ctc/docs/gis-2009-09_en.pdf

pcrs's picture

I don't understand how the Chinese gvt can both stick to the currency peg, but also avoid inflation. If you currency is tied to the USD, you will have Ben style inflation, there is nothing you can do about it, it seems to me.

 

66Sexy's picture

Capital will rush to the melt up; where fast equity appreciation will occur: and with interest rate hikes, that aint china. There is no 'long position'... its just speculating on what will appreciate in the next 10 minutes.

Thats why these idiots on CNBC are saying to continue to buy emerging markets... because they are selling emerging markets.

Besides, no data out of china can be trusted because they have non productive over employment, ruinous excess capacity, a vacumed real estate market, empty buildings and empty cities with market rents reflective of a "normal market"... and a lot of chinese with their 100 Yuan notes with Mao on 'em trying to buy gold for the equivalent of $1,500+ USD per ounce... a .25 rate hike is meaningless.

It will be the opposite of what everyone thinks:

PM's rally on china interest rate hikes and the DOW approches 14,000 by march 2011.

 

China Interest rate hike? Bullish for US assets.

Non Passaran's picture

I also think gold will go up next week. The continuation of the policy of negative real interest rates isn't great news for those long RMB - while the yuan in 2011 may slightly appreciate vs. the dollar, it'll go down vs. PMs and commodities.

Spitzer's picture

cetral bankers say the opposite of what they mean.

revaluation is coming

eatandtravel's picture

We are going to find out if the Chinese government can handle a crisis such as a liquidity issue.  I have my doubts.  In my view, there is going to be unstability and as a result, there will distruptions in the manufacturing sector.  Foreign companies aren't going to be too happy.  Expect Vietnam and Mexico to be the winners when China hits the skids. 

anonnn's picture

RRR = Reserve Requirement Ratio '

Write for your readers, not for author-ego.

steve from virginia's picture

.25%? You gotta be kidding me!

China is likely long past the Paul Volcker- esque 18% rate needed to curb Chinese hyperinflation. The .25% is theater, more fraud from the international finance cartel of which China is a dues- paid member.

China has no desire to fight inflation which would require capital controls rather than rate hikes. Imposing capital controls would crash China's real estate bubble economy, bankrupting both the govenrment as well as highly leveraged Chinese elites.

I can guarantee that this will never happen: that China will never bankrupt its elites. Warren Buffett will give his fortune to the Salvation Army, first.

It is China, not America that is experiencing hyperinflation, that is 'printing money' that is inflating away its debts as fast as possible. China is the Weimar Republic; it's industrial base is excessive to any world- or domestic demand, its workers restive. Why not bankrupt the lot with inflation and steal their savings?

China has a big army which can control citizen fury, with tanks and artillery if necessary.

If China does not impose capital controls, rate increases simply attract more 'hot money' capital increasing China's money supply.

China's real problem is its fixation with F/X reserves. The cost of maintaining the putative 'value' of these reserves is bankrupting China.

eigenvalue's picture

Exactly. China is the 21st Evil Empire. The Chinese government doesn't have the guts to apply drastic tightening to quell inflation. All the banks in China are owned by the government and it is the Chinese government that is most highly levered entity in China. Only hyperinflation can solve the problem.

Cursive's picture

@eigenvalue

 Only hyperinflation can solve the problem.

What?  Hyperinflation leads to social unrest, chaos and failed governments.  Please give me examples of hyperinflation solving anything.

Spitzer's picture

China is the creditor you fools.

China will be stuck doing what the creditors did in Thailand in 1997, cut their losses. The US dollar will go the same way the Baht did. Down by 20 to 40%

eatandtravel's picture

The dollar will tank like the Thai baht?  If there are any global distruptions, expect the dollar to gain strength.  Do you follow history?

Rider's picture

.25 % is a joke indeed, they are going to notice when they have another 25% increase in the price of milk YoY next month.

h3m1ngw4y's picture

do you guys really think volker hiked rates overnight to 21%?? lol

i think its a fallacious argument to compare a 2 month rate hike of .5% with an annualized rise of 25% in milk per annum, ok? thats the kind of thinking that looks dramatic only for polemic reasons.

please do the math and compare apples to apples not apples to milk *g* furthermore the compare interest rates and cpi not interest rates to volatility.

so how much rate hike is this 0.5 since october annualized. and is this a big jump or not? is there more to come or not? are they aware of the problem or are the states aware of the problem?

plz be rational not polemic

 

 

 

Seer's picture

"plz be rational not polemic"

Amen!

Rider's picture

What about near 2 percent in a couple of months? Like it happened in some "first world" countries. When problems are this deep, central planning here in US or in China do extreme things.

What about "emergency" Interest rates of almost 0% for TWO YEARS so far (pretty lenghty "emergency" we thought we were, as Geithner said, in a "recovery")?

This still being desperate times, and we will see extreme adjustments to the extreme measures taken in the ongoing crisis, is not polemic is just reality, that if you want to smell the coffee.

 

So again, .25% to stop that kind of inflation and unbalances is too few, too late.

eatandtravel's picture

Nice read.  That's why I sold my Yum Brands for a handsome profit.  China is going to experience a hard, hard, hard landing.  Hopefully, this will scare our people and government to doing the right thing.

lamont cranston's picture

Steve-

Glad their tanks are domestic and not headed fro Siberia, which, is my worry.

Well before 18% rates back then (I had a 5 YR rollover/15 yr amortization secured floating rate note that originated in 1978 commercial note that started at 8.75% and went to 19.25% in 3+  years, about bankrupted me at age 29), but survived by hocking my house in an inflating RE market. That ain't the case 2day.

China and the US and the whole world are ded if that happens.

Azannoth's picture

I think China should make an offer to the USA "We will trade 2000$ worth of your Treasuries for 1 oz. of gold from Fort Knox" put the shit in the FED own mouth

 

at 147 million oz. it would be x2000 = 300 Billion 1/8 of Chinas foreign reserves I guess it would be a bargain

MarketTruth's picture

As many know, the Fed has no gold clean and clear of obligations. As such, there is America-owned gold in 'Ft Knox'.

threefingerscam's picture

No gold at Ft Knox then, is really Faux Knox.

MarketTruth's picture

HUGE typo and my apologies.

 

There is NO gold in Ft Knox.

bankrupt JPM buy silver's picture

Gold? in ft knox?  LOL, Im not sure if this is sarcastic, or you actually think AMericans still have an ounce of gold in some bunker that was audited before the biggest fiat print man has known...

Azannoth's picture

I know the Chinesse have a shotgun to the USA head and can pull the trigger att will, the blowback would knock their teeth out but the Western system would fall

eatandtravel's picture

Why would the Chinese trade their prized possession which is the dollar?  The world is experiencing deflation people.  I know about commodities.  Expect commodities to drop like a rock when China hits that liquidity cliff.

By the way, phyiscal gold and silver will go through the rooof.

 

David99's picture

China's Christmas present

USA, you do QE and we do QT (Quantitative Tightening) and Fraud Street will do the QV (Quantitative Vaporing).

eigenvalue's picture

Gold and silver will be nuked on Monday. Blythe Masters will never miss this chance. What a tragedy!
By and by, the rates hike was simply theatre. Even the underestimated CPI now stands above 5%. 0.25% is just a farce.

Oh regional Indian's picture

Why eigen? Care to explain the correlation? You mean hot money will flow into China as a result and away from PM's?

Somehow, I cannot see this tiny hike compensating for all the other excesses and riskes in the Chinese system?

Like someone said upthread, Vlokeresque tightening is the only thing that can work, but the intended and unintended consequences of the same will be mind-boggling.

I think we'll see slow creeps and no pull-backs on interest rates world over.

ORI

http://aadivaahan.wordpress.com

eigenvalue's picture

I'm not talking about the fundamentals. In terms of the fundos, of course go long PMs. A 0.25% hike is not enough to curb the inflation in China. On Monday, most traders are away on holiday and the volume will be thin. It will be a perfect time for Blythe Masters to hammer PMs.

duo's picture

can't wait.  Buy some Jan ITM calls on SLV after the $1 "crash" in silver (bottom usually hit around noon EST).  Sell the next morning.

Finding the true bottom on a PM beat-down day is the hardest part.

eigenvalue's picture

The open interest of silver is steadily increasing these days despite all the hammering. If Blythe hammers further, the open interest may keep increasing. That could create a delivery problem for Blythe in March.

Al Huxley's picture

I've been bullish on PMs for years now, but this talk of delivery problems has been going on for years as well, and never materializes. 

strannick's picture

Specially when they can deliver dollars or SLV shares

Seer's picture

"A 0.25% hike is not enough to curb the inflation in China."

It was clearly noted above that this is ONE increase, of which there has been two over the past two months.  One could say that this is a clear trend, and, if extrapolated out to a full year, isn't exactly peanuts.  Again, don't look at only ONE day: if they did this EVERY day would you be saying the same thing- "it's a paltry amount!"

Azannoth's picture

There was a small selloff in PM equites end of week, I guess there was a leak, cuz the PM themselves did not move at all

El Hosel's picture

  "cuz the PM themselves did not move at all"

  Many of the PM equities  sold off on chunky volume late Thursday, they bounced back on anemic volume Friday...  Just saying. 

Non Passaran's picture

Why would that be a tragedy? That doesn't make any sense.
Everyone who wants to be long can buy some more at a lower price.

Cognitive Dissonance's picture

After all the dominoes have triggered and the party is over no one ever remembers the first domino to topple. I can't help but wonder if the Chinese are finally enacting their revenge for the Western powers arrogant use of Gunboat Diplomacy begining in the 19th Century and progressing all the way to 2010.

Payback is a bitch.

http://en.wikipedia.org/wiki/Gunboat_diplomacy