Asian stock markets fell yesterday, following China’s move to increase interest rates for the third time in four months, in an attempt to control rapidly escalating prices.
Market watchers are preparing themselves for further tightening measures, as inflation is likely to remain high, adding that a stronger yuan, a higher reserve requirement ratio and further rate increases could be underway.
The newest rate hike caused the Straits Times Index (STI) to lose 34.8 points or 1.1 percent closing at 3,150.56, its lowest level in more than a month.
Real estate developer CapitaLand, which has a substantial presence in China, led the percentage decline, dropping 10 cents to $3.48.
The Shenzhen Composite Index stumbled 0.9 percent to 2,774.07, while the Shanghai Composite Index lost nearly one percent to 1,186.22. Hong Kong’s Hang Seng Index also slipped 1.4 percent to 23,164.03.
While investors seem suspicious of the newest rate increases, economists were mainly in favour of the authorities’ effort to cool inflation.
“The central bank needs to be seen as acting in order to manage inflation expectations,” said Dariusz Kowalczyk, an economist at Credit Agricole.
”Second, it needs to bring real deposit rates closer to positive territory. This is a necessary step to increase the relative attractiveness of savings vis-a-vis investments, which is critical to counter the risk of asset price bubbles.”