Watch These Yuan ETFs as China Raises Interest Rates (CYB, CNY)

Tim Seymour:  Traders who expected Beijing to wait until the weekend to tighten interest rates got a surprise last night, but the good news is that inflation in China may be peaking.

Chinese stocks edged slightly lower after the People’s Bank of China announced its latest monetary policy move.

One-year yuan-denominated deposits will now pay 3.5% while one-year loans will charge 6.56%.

Both represent 25 basis-point increases — the third in China so far this year.

While some traders believe the cooling effects of more expensive money will bode ill for the Chinese economy, others are far more concerned that inflation was heading out of control, without the intervention of the central bank.

As it is, consumer prices in China have soared 5.5% on an annualized basis, and many strategists expect the June headline inflation number to crack 6%.

According to Premier Wen Jiaobao, inflation has peaked for now — you heard it here.

The question is whether higher rates will starve the Chinese economy of the liquidity needed for growth. There is some talk of a bubble out there, but few economists currently see a hard landing on the horizon.

In any event, since the People’s Bank of China still officially targets a ceiling of 4% inflation, price stability is clearly a priority over economic growth.

Expect the yuan and yuan funds like the Market Vectors Chinese Renminbi/USD ETN (NYSE:CNY) and WisdomTree Dreyfus Chinese Yuan ETF (NYSE:CYB) to look strong today.

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

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