China's Central Bank Raises Interest Rates 0.27%

The People's Bank of China raised its one-year benchmark lending and deposit rates, each by 0.27%, to 6.39% and 2.79% respectively -- its third hike over the past 11 months. It was thought there could be adverse effects on equities due to higher borrowing costs and more attractive yields from savings. Nonetheless, the Shanghai Composite gained 2.87% today. The WSJ quoted a Goldman Sachs analyst who viewed the PBoC hike as "positive" and said, "In our view, raising both the deposit and lending rates is a much more efficient and effective measure of monetary tightening than a reserve requirement ratio hike or intensive moral suasion on bank lending." Bloomberg quoted an RBC currency strategist who said, "Risks remain skewed toward another 27 basis point rate hike this year. Yuan appreciation is part of the tightening policies that we expect." Separately, market participants will be focused on the FOMC's policy decision this Wednesday.

Sources: Bloomberg, The Wall Street Journal [I, II]
Commentary: Trouble in Asian Equity? China Raises Interest Rates, Again • China's Premier Says Plans to Diversify Reserves Won't Affect U.S. Dollar • China's Commerce Minister Discusses Trade Surplus, Critical of U.S. Proposed Tariff
Stocks/ETFs to watch: iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), PowerShares Golden Dragon Halter USX China Portfolio (PGJ). Bonds: iShares Lehman Aggregate Bond (AGG), iShares Lehman 1-3 Year Treasury Bond (SHY), iShares Lehman 7-10 Year Treasury (IEF), iShares Lehman 20+ Year Treas Bond (TLT), iShares Lehman TIPS Bond (TIP). Currency: PowerShares DB G10 Currency Harvest Fund (DBV), Euro Currency Trust (FXE)

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.