China’s efforts to keep its inflation — specifically its food inflation — in check is going to be a hugely important theme for market watchers to keep an eye on in the coming months. This morning China tightened the credit spigot even more in an effort to clamp down on price rises. Here’s what some of our regular stable of market scribblers are saying about the move.
Alex Bellefleur, Brockhouse Cooper: The good news in China’s reserve requirement hike is that there are now no questions that Chinese policy makers have their eyes firmly set on the country’s real estate market. The key question is now whether they will succeed in averting a bubble and cooling down the market without negative consequences for the Chinese economy as a whole. Reserve requirement hikes are an effective way to control credit creation, but we would suggest that without meaningful yuan revaluation, more capital will likely be misallocated in China - and this includes real estate speculation. This is why we expect China to gradually revalue its currency over the coming years.
Camilla Sutton, Scotia Capital: China’s reserve ratio requirement hike today has driven downside market volatility. This is logical given that tighter monetary conditions constrain growth relative to looser conditions, but the market’s shaky reaction is telling of the degree of uncertainty in asset price valuations. Ultimately, in the longer term the hike is a good thing as China is likely behind the curve in tightening policy, however the jittery reaction to it is perhaps telling of just how uncertain the market has become over the level of some asset prices....MORE