Thursday, January 7, 2010

China Raises Key InterBank Rate

This is could be big.

China has been the only country that has been aggressively printing money.

Today, China's central bank unexpectedly raised a key interbank market interest rate. This is the first hike in nearly five months, signaling a change in its policy focus.

The rate hike, in the form of a higher yield in its weekly bill sale, comes less than a day after the People's Bank of China hinted its priorities had shifted toward managing inflation expectations and away from supporting economic growth.

This rate hike alone is unlikely to slow China's printing presses by much, if at all, but it is the trend that is key. If these hikes continue, the PBOC will eventually get the interbank rate above the real rate, thus halting the money printing.

Since, China is the only major money printer at this time, it will pull the plug on this source of manipulated liquidity, setting the stage for a worldwide decline. It's a bit early to forecast such a worldwide downturn (as opposed to a U.S. double-dip) but the possibility of such now exists.

1 comment:

  1. Is this in any way related to a Fed president making a trip to China?