Chinese authorities surprise market with a rate rise

The Chinese authorities yesterday increased base rates with one-year deposit rates now standing at 2.5% and one-year lending rates at 5.56%. It would appear that the Chinese authorities are concerned about the short to medium term direction of inflation which has been higher than the authority's 3% target for some time now. Indeed the government is encouraging savers to retain their funds in the bank and not feed the consumer frenzy which has pushed inflation to the current level.

This is a significant difference to the situation in the UK were indeed only a few days ago one member of the Bank of England was suggesting that savers should "spend to help the UK economy". It is unlikely that UK base rates will move higher in the short to medium term, despite the threat of inflation, as the more immediate concern is in relation to the strength of the economy and the fragile nature of the ongoing recovery. However, the increase in base rates by the Chinese authorities could move currencies and economies out of sync and impact upon the export market.

There is no doubt that each and every economy around the world has been affected by the ongoing economic crisis and there are many challenges still ahead.