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Markets Respond to Interest Rates Increase

Crude oil futures fell to a three-week low in New York after China's central bank raised its benchmark interest rates for the first time in nine years, a move that may reduce growth in fuel consumption, reported CCTV Friday.

 

Bond prices fell around the world, sending yields higher. The US dollar strengthened but then eased as investors feared a slowdown in China would weaken growth across Asia and weaken demand for commodities.

 

US Treasury Secretary John Snow said he was pleased with China's decision to raise interest rates and said it was an appropriate means to cool the country's economy.

 

He also said increases in interest rates is a useful mechanism in achieving macro-economic objectives.

 

Japanese Economic Minister Heizo Takenaka said today he did not expect any negative impact on Japan's economy because of the rate hike.

 

Although the timing came as a surprise, economists had been expecting an interest rate hike at some point.

 

Many said they believed more would follow but that the increases should not be seen as an attempt to tighten credit:

 

l         "I think the actions they have taken are appropriate. I am pleased to see them using market-based mechanisms -- interest rates -- to deal with these concerns about potential inflation", said John Snow, US Treasury Secretary.

 

l         "I do not think the rate rise would immediately have a negative impact on the Japanese economy. I would like to monitor the impact of China's overall policy (to cool its economy)", said Heizo Takenaka, Japanese Economics Minister.

 

l         " It's very likely they will have another 25 basis point rise in the next six months." According to HSBC.

 

l         "They're gingerly starting to raise rates just to send a signal to banks and depositors ...the move should not been seen as an attempt at credit tightening." According to UBS.

 

(CCTV.com October 30, 2004)

 

 

Central Bank Ups Interest Rate
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