主题：【英文文摘】谢国忠：加息不一定等于人民币升值 -- 西风陶陶

• Growth reacceleration and speculation triggered the first rate hike in 9 years

The People’s Bank of China (PBoC) announced a hike in interest rates with effect

from October 29. We believe that the recent reacceleration in growth, increased

speculation in the property market and persistent inflation amid the authorities’

reluctance to lift rates last month had raised concern that the economy could again

overheat. The latest move sends a strong signal that the government is not yet

loosening its grip on the pace of economic growth, and indicates the determination to

cap speculation and runaway growth in order to lead the economy towards a more

sustainable path of development for the medium term.

• 1-year lending and deposit rates raised by 27 bps; lending rate ceiling removed

The benchmark 1-year lending rate is raised by 27 bps, from 5.31% to 5.58%; so is the

1-year deposit rate, from 1.98% to 2.25%. Rates for longer tenors are raised more,

with the 5-year lending rate up 36 bps to 6.23% and the 5-year deposit rate up 81 bps

to 3.6%. Except for credit cooperatives, financial institutions will be allowed to set

lending rates above the benchmark rate with no ceiling, against a 1.7 times cap

imposed before, while the 0.9x floor to lending rates remains in place. A 2.3x ceiling

will continue to apply to lending rates at credit cooperatives.

• Economic and currency implications: watch the property market

We believe the most immediate impact from the rate hike will be seen in property

prices. Expectations for slower economic growth, tamer inflation and higher deposit

interest rates will encourage households to save more and cool their demand for

property, in our view. Meanwhile, we do not interpret the rate hike as a signal of an

imminent change to the fixed exchange rate regime. The rate hike is only consistent

with catching up with the 75-bp increase in the US under the pegged regime, and does

not necessarily lead to more inflows into renminbi. In fact, reduced speculation on

asset prices amid tighter liquidity conditions could help ease appreciation pressure on

the currency, in our view.

• More tightening could be ahead

We believe that today’s announcement sends a strong signal of determination to

contain speculation and slow growth in China. It marks a shift from administrative to

market-based measures in managing the economy, and could be the first of several

steps upwards in rates. China’s interest rate cycles are traditionally long; the 1-year

lending rate was raised by 342 bps in total during the May 1993-July 1995 tightening

cycle. We remain convinced of a significant cyclical adjustment ahead.