The people's bank of China's surprise decision on Oct. 28 to raise interest rates for the first time in nine years has spurred a furious reading of the tea leaves. One camp thinks the move by PBOC Governor Zhou Xiaochuan signals the beginning of a series of increases aimed at keeping the lid on the country's rampant investment growth. Another group says it's a precursor for revaluation of the yuan. A third suggests that the rate hike is Zhou's bid to nip inflation in the bud. Zhou may have all three goals in mind. But there is another, equally compelling explanation—that Beijing is raising rates because ifs desperate to lure depositors back to banks and away from the informal lending market. "The central bank is very worried about the gray market draining funds" out of the banks, says Frank EX. Gong, chief economist for China at JPMorgan Chase & Co.
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