China’s decision to raise interest rates on Christmas Day has given investors time to digest the news without rushing into action. Even when trading resumes on Monday, it is likely to be quiet, with the last week of the year traditionally a time for low volumes and subdued price movements.
The 25 basis point increase in lending rates to 5.81 per cent was widely expected, after Beijing officials repeatedly signalled their concerns about possible over-heating in the property market and growing inflationary pressures.
The People’s Bank of China raised rates in October, for the first time in three years, and has increased six times this year the ratios of deposits banks must deposit at the central bank. Economists expect further tightening in the New Year – of up to 100 basis points through 2011 as the authorities grapple with inflation, especially politically-sensitive food price inflation.