JIM O'NEILL, ASSET MANAGEMENT DIVISION CHAIRMAN AT GOLDMAN SACHS, TALKS ABOUT CHINA RAISING RATES ON BLOOMBERG SURVEILLANCE
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OCTOBER 19, 2010
SPEAKERS: JIM O'NEILL, CHAIRMAN, ASSET MANAGEMENT DIVISION, GOLDMAN SACHS
TOM KEENE, HOST, 'BLOOMBERG SURVEILLANCE'
KEN PREWITT, CO-HOST, 'BLOOMBERG SURVEILLANCE'
08:11
TOM KEENE, HOST, 'BLOOMBERG SURVEILLANCE': And now joining us from London, Jim O'Neill.
Jim, good morning.
JIM O'NEILL, CHAIRMAN, ASSET MANAGEMENT DIVISION, GOLDMAN SACHS: Good morning to you, Tom. How are you?
KEENE: Very good.
We see China reacting today. They raised the rates. Let's just start with Econ 101.
They raised their rates more for domestic reasons than international reasons, didn't they?
O'NEILL: Well, maybe the two coincide for the first time in a while. You know, obviously, linked to some of the issues about the currency. If they're letting the currency rise, then they're less concerned about interest rates rising than they might have been before.
It's very interesting. I've just literally come from another meeting, and I wasn't aware that that's just happened. So - but of course the domestic reason is that they are showing such an incredibly vigorous recovery, that there is some modest inflationary risk.
KEENE: Yes.
O'NEILL: So they're doing that. But I think it's important to consider that it might - you know, the international domestic interests may coincide.
KEENE: Very interesting.
And to review that, folks, a 25 basis point rise in their lending rate. That is effective tomorrow.
Jim O'Neill, I'm looking at the inflation chart for China. We sort of have an idea of what inflation rate we want for a big developed economy. What's an appropriate inflation rate for a nation with a nominal GDP that's double digit?
O'NEILL: That's a very, very interesting question. The truth of the matter is, I don't know whether we know or I don't know whether the Chinese policymakers know, as with many other things about the place, because there's such enormous change going on.
I think to have too stronger-defined opinion about such questions is a little bit dangerous. That being said, the PBOC, which is the Chinese central bank, appears to have an inflation target of 2 to 4 percent. And we are clearly showing signs of moving out of the top end of that range, and they're going to try to do things so long as it doesn't weaken the economy too much to slow it down. But it might well be that they have to not be too dogmatic about that given the remarkable growth that's going on and some of the important changes, not least rising wages and a shift of growth in the next phase of China from exports to domestic consumption.
KEN PREWITT, CO-HOST, 'BLOOMBERG SURVEILLANCE': We have Treasury Secretary Geithner saying in California last night, basically, there's not going to be a currency war. But, I mean, there's no doubt a low currency is helping the U.S., right?
O'NEILL: It's an interesting observation, and it's quite interesting to see Tim talking the way he did last night, because obviously the U.S. is now starting to feel a little bit of heat from other countries around the world that are bearing the brunt of the accommodative stance of the Fed, you know, varying from Brazil, of course, all the way through Asia, to the likes of Korea. And in this regard, what the Chinese do more with their currency I think is absolutely the key.
My own opinion, the whole topic of currency wars is a very superficially simplistic, attractive thing for the media world, but I don't think we're anywhere near a currency war myself. It's just that many developed countries are having to do pretty extraordinary things to get their economies to recover. And one of the temporary consequences are that their currencies are going to weak.
KEENE: Let's come back with Jim O'Neill. He's still recovering from the Wayne Rooney news.
We're going to come back with Jim O'Neill of Goldman Sachs.
08:14
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