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Two Steps Back, One Step Forward

The People's Bank of China said on its Web site late Friday that it will raise the benchmark lending and deposit rates by 18 basis points and 27 basis points respectively. This will be in addition to another 50-basis-point rise in the reserve requirement for banks. The PBOC also announced the widening of the yuan trading band from 0.3 percent to 0.5 percent against the US dollar.

Now it appears the PBOC is getting serious trying to halt the China stockmarkets. However, the widening of the appreciation band for the yuan will actually provide good support. PBOC had to do something with the yuan as there is a big visit to Washington this week by some Chinese big wigs. This is to provide some solace for Paulson to pacify the threats of American lawmakers. The rumblings are that there will be more tough questions asked during the visit. Unfortunately by allowing the yuan to gain more ground, it stokes the stockmarkets in China even more (currency gains in outlook).

Finally PBOC is doin something with its deposit rates, it is still too low vis-a-vis the lending rates. Deposit rates need to go up even more aggressively so that it can present as aviable counterbalance to soak up speculative funds.

Initially we may see a drop in the China markets but it is difficult to envision a dramatic correction as the yuan issue will perk up bottom fishers.

Comments

ahh, this arial font is so much easier on the eyes than the arty one. thank you
rask3 said…
However you slice it, dice it or cut it, overvaluation of stocks is still overvalution, after taking forward PE's and future cash flows into consideration.


Which implies that once the stock market has sucked in all the suckers, and there is practically no one left to be slaughtered, there will be a big crunch. The supply of fools cannot be endless.


Rask
Tauke Saham said…
Godday Sir,

Ur blog is very interesting. Permission to link from mine.

Rgds,
TS
Salvatore_Dali said…
tauke,

have visited yr blog too, its very good, sure no prob, will do same here
stocktube said…
when everyone thinks the market is unstoppable, that's when you should be careful ... but your concern will always be drowned by the huge spectators who like to watch the show to continue non-stop ... just my opinion ...

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