What is it about the holidays that inspires monetary tightening? China’s central bank announced a 25 basis point rate rise on Tuesday, the last day of Chinese New Year, after a previous rate rise on Christmas Day.
The rate hike is aimed at fighting inflation, but an interesting knock-on effect will be how commodity prices react. Last autumn similar rate rises by the central bank sent commodity futures prices temporarily down on exchanges from Zhengzhou to Dalian as investors sold on fears that inflation would prompt more draconian tightening in future and could lead to slowing economic growth.
The rate rise of October 19 sent the price of Shanghai copper down 2.24 per cent the next day, although it recovered within a week. Similarly the Christmas day rate rise sent copper down 0.7 per cent amid light global trading due to the holidays.