SYDNEY - China's Christmas Day interest rate increase was not exactly a bow-tied gift to investors but it is an opportunity.
A failure by China to act firmly to stem price pressures would have had far more serious repercussions than continuing to tighten policy as investors would have started worrying about monetary authorities getting behind the curve and contributing to a hard landing next year.
The Chinese economy is expected to grow somewhere around 9 percent next year, and unchecked inflation would have led to a rush to tighten and heightened asset market volatility.
Though many analysts had expected China to rely mainly on quantitative tightening measures, notably more bank reserve requirement ratio increases and lending restrictions, the writing was on the wall after the recent switch in Beijing's terminology of its monetary policy to "prudent" from the previous "moderately loose".
Investors are now presented with attractive prospects moving into 2011. The nascent US recovery, a softly engineered landing in China and continued healthy growth in Asian (ex-Japan) economies, spearheaded by India, has set the scene for another year of robust global growth.
So any let up in riskier assets following the quarter point rate hike by China's central bank on Saturday could set up yet another buying opportunity in global stock markets.
Reuters
