Chinesepod - Morgan Stanley: China may raise interest rate despite US cut

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BIZCHINA / Center

Morgan Stanley: China may raise interest rate despite US cut

By Tu Lei (chinadaily.com.cn)
Updated: 2007-09-20 17:24

The cut in the United States' interest rates would not stop China's
interest rate hike if the country's inflation does not ease, said an
expert from Morgan Stanley, reported today's the Shanghai Securities News.

Wang Qing, chief economist for Greater China of Morgan Stanley, said the
US Federal Reserve slashed benchmark interest rates by a half-percentage
point on September 18, an indication that rates in the US will continue
to drop.

However, Wang said China will increase interest rates, regardless of cuts
in the US.

Morgan Stanley predicted the People's Bank of China will raise interest
rates at least once before the end of this year, and the exchange rate
between US dollar and yuan will drop to 7.30 by year end.

And it also predicted the US Federal Reserve will cut the interest rates
by 100 basis points totally by the middle of 2008, meaning the interest
rate gap between US dollar and yuan will be narrowed, and yuan will
suffer more appreciation pressures.

It seems that since the second half of last year, the monetary policy in
China has shifted to control on asset prices and inflation hikes from
guiding yuan's appreciation through interest rates, said Wang.

The interest rate gap between the US dollar and yuan has narrowed to 200
basis points from 300, added Wang.

Figures from the China Foreign Exchange Trading System today show that
the central parity of yuan against the US dollar is 7.5175.

(For more biz stories, please visit Industry Updates)

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