The People's Bank of China [PBOC] raised its one-year lending rate by 0.18% to 7.02% and the one-year deposit rate by 0.27% to 3.6% (effective Wednesday), following the latest economic readings of GDP growth of 11.9% in Q2 and inflation up 5.6% in July, as its trade surplus continues to surge. The higher increase of the deposit rate signals the PBOC's attempt to limit the outflow of funds from savings to the stock market. Bloomberg mentions this is the second time this year the PBOC has hiked deposit rates further than lending rates. The CSI 300 Index (consisting of Shanghai and Shenzhen A-shares) rose 25% in the past month, even as a global equities rout wiped at least $5.5 trillion from stock markets worldwide, reports Bloomberg. A Hong Kong-based Deutsche Bank analyst commented on the PBOC's concern about inflation (although largely food-driven; see full summary) and asset bubbles, saying, "We can't rule out another interest rate hike this year." The Shanghai Composite gained 1% to a new record close of 4,955.21 and the yuan lost 0.05% to 7.5906/$1, ahead of the PBOC's announcement.
Commentary: China's Latest Financial Coup: Buy 'H' Shares • Chinese Markets Beginning To Crack • China: Surging Food Prices Push Inflation to Highest in 10 Years
Stocks/ETFs to watch: Bond funds: SHY, IEF, TLT. Currency funds: DBV, FXE, FXY. China funds: CAF, FXI, PGJ
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