BIZCHINA / Comments & Analysis - Overseas |
China rate hike not to impede demand for commodities(XFN-Asia)Updated: 2007-03-20 14:17 The People's Bank of China's (PBOC) decision to hike its key interest rate by 27 basis points is unlikely to have any significant impact on demand for commodities with exports seen continuing to grow strongly, economists in Sydney, Australia said. PBOC at the weekend raised its key lending rate by 0.27 percentage points to 6.39 percent, while also raising the deposit rate by the same amount to 2.79 percent. The economists said the tightening move should cool domestic demand slightly but is unlikely to weaken the strong global demand for Chinese exports. And they added the government needs to undertake more direct measures if it wants to slow investment in China's infrastructure and manufacturing capacity which has underpinned world commodity markets, pushing prices for commodities such as iron ore and nickel to record levels. Westpac Banking Corp senior international economist Huw McKay said the rate hike appeared to be largely symbolic with the authorities needing to be seen to be taking some action to redirect growth away from investment to consumption. "Our view is commodity prices will remain pretty resilient this year really...the Chinese authorities are more concerned about preventing a stock liquidity problem from emerging by trying to control new flows of liquidity, " McKay said. McKay sees China's GDP growth rate moderating to 9.4 percent in 2007 from last year's 10.7 percent pace. "That's still a very comfortable environment for commodities," he said. He said Australian stockmarket investors have taken China's tightening in their stride and are continuing to buy resource stocks on expectations the rate hike will not impact commodity prices. CommSec chief equities economist Craig James said the modest nature of the increase is good news. '"The last thing anyone would want to see is for the Chinese economy to enter a boom-bust cycle (sparked by drastic measures), so the latest delicate rate hike is very encouraging," James said. However with China's annual economic growth rate at close to 11 percent, the authorities are still well short of their target of pulling GDP growth back to 8.0 percent, and further tightening measures are likely. In the meantime however he said he will continue to favor stocks in the materials sector such as BHP Billiton and Rio Tinto. (For more biz stories, please visit Industry Updates)
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