Expert: China's capital market can withstand interest rate hike

08:49, December 10, 2010      

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China's prudent monetary policy stance won't rock the stock market even if there is an interest-rate increase, senior officials said.

"A possible rise in Chinese interest rates will affect stock prices only for two or three days," Xia Bin, an academic adviser to the People's Bank of China, was quoted as saying by the China Securities Journal yesterday. "Stock investors should realize that an interest rate increase only has a short-term impact."

Shanghai's key stock index has been falling over the past few days as worries about higher interest rates deepened. The benchmark Shanghai Composite Index dropped 1.3 percent to the lowest in almost two months yesterday.

The government is due to release November's economic data on Saturday. The Consumer Price Index, the main gauge of inflation, is widely expected to rise to a new record and has triggered speculation for an imminent interest rate hike.

Wang Qing, a Morgan Stanley economist, forecast the inflation rate may climb to 4.8 percent in November from a year earlier, up from a 25-month high of 4.4 percent in October.

Some analysts called the coming days a "sensitive" period for an interest rate rise.

Meanwhile, Wu Xiaoling, a member of the Standing Committee of the National People's Congress, China's top legislature, and vice chairman of its Financial and Economic Committee, said the central bank needs to further raise reserve requirement ratio and issue more bills next year to reduce excessive liquidity.

"The priority is to increase the sterilization to reduce the impact from global speculative capital on China's real economy," Wu told the 21st Century Business Herald.

Wu said there is still room for further rises though the reserve requirement ratio has hit a record high of 18.5 percent after five hikes this year.

Source: Shanghai Daily


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