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Reaction (China May Lean More on Interest Rate Rises to Fight Inflation)

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China may lean more on interest rate rises to fight inflation http://economictimes.indiatimes.com/news/international-business/china-may-lean-more-on-interest-rate-rises-to-fight-inflation/articleshow/9195508.cms Fighting inflation while keeping the domestic currency weak to stimulate exportation is a very prominent problem that most likely every policymaker would rather choose not to handle. It is known that an increase on interest rate would have various economic effects such as of the increase of government debt’s interest payments that would lead to higher taxes in the future, increase of incentive to save in a deposit account due to interest gained, increases the cost of borrowing that will lead to the fall of other areas of consumptions, increase in mortgage interest payments that will have a significant impact on personal disposable income, and most of all raised interest rate will increase the value of the domestic currency, which in case of China becomes unfavorable being an export-driven country.
As being called by China “its most prominent problem”, the increase in interest rate was seen widely appealing to US policymakers who has been accusing China of maintaining low interest rates to keep yuan low and exports cheap. Though the said action is considered as Chinese authority’s way of balancing their economy it certainly may speculated that the US and China are in some sort of a deal. The move follows a clear need by the Chinese authorities to take out some of the heat from the economy. Whether true or not that the speculation Chinese authorities involvement in backdoor deals with the US administration to nudge its currency upwards, we may expect the dollar to move higher and battles of interest rates in the financial war. On the otherhand

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