The Federal Reserve announced that it cut the overnight interest
rate by a quarter of a percentage point, to 4.25 percent.
This has been the Fed's third interest rate cut since this
September in an effort to sustain a stable economy. The Fed also
suggested that it might further lower the interest rate starting
next January.?
The Fed's interest cut further narrowed the interest rate spread
between China and the US. Guotai Junan Securities believed that if
the Federal Reserve further reduces the interest rate, the Chinese
Central Bank will consider raising their interest rate again.
As a result, the interest rate spread between China and the US
might become negative. Subsequently, a large amount of speculating
capital could flow into China, thus further increasing the pressure
of excess liquidity inside the Chinese financial system.
Zhou Xiaochuan, governor of the Chinese Central
Bank, admitted yesterday that China felt great concern whether the
Fed's interest cut would trigger a new round of global excess
liquidity.??
For more details, please read the full story in Chinese. (http://www.morningpost.com.cn/article.asp?articleid=141024)
(China.org.cn December 13, 2007)
