China Finally Cuts Rates

Today, China cut their benchmark central bank rate for the first time since February 21st, 2002.  The People's Bank of China cut their one-year lending rate from 7.47% to 7.20%, which will be effective tomorrow. 

Below we highlight a chart of China's central bank rate and its Shanghai Composite equity index over the last ten years.  As shown, rates rose in lockstep with China's equity markets from late 2005 to late 2007. 

As the Shanghai Composite has nearly given up all of its bull market gains since 2007, China's 1-year lending rate had remained the same in the face of rising inflation and continued GDP growth.  Based on the chart below, however, rates may have a ways to go on the downside.

click to enlarge

Comments

[NOWHEREMAN:]

The real question is whether the Fed will lower just a qtr point or will it try to keep the Chinese currency stronger by going the 50 route?

2008 Sep 15 02:42 PM

[xhtt:]

According to CNStock, Andy Xie, ex-Morganstanley economist, said China A share market - Shanghai composite index will move downwards further from current level of around 2000 to 600. If that was the case, I guess US market would drop at least 50%. GS, MS and City would all go bankrupcy for sure.

2008 Sep 16 10:14 AM