Update | China raises money market rates to stabilise yuan and outflow, after Fed’s move
PBOC lifts reverse repo rate by 10 basis points, injects fresh funds of 303 billion yuan through medium-term lending facility
The People’s Bank of China raised its monetary market rate for the second time this year, and injected fresh funds into the country’s banking system, to stabilise the currency and ease capital outflow pressure, after the quarter-point rate increase by the US Federal Reserve overnight.
The PBOC raised the reverse repo rate by 10 basis points on Thursday, and injected 303 billion yuan (US$44 billion) of funds into 17 of mainland China’s financial institutions via the medium-term lending facility (MLF), setting the six-month MLF rate at 3.05 per cent and the one-year MLF at 3.2 per cent, according to a statement on the central bank’s website.
The MLF tool was first introduced in 2014 to help commercial and policy banks maintain liquidity by allowing them to borrow from the central bank.
The reverse repo, or repurchase, is a process whereby the central bank buys securities from banks through bidding with an agreement to sell them back in the future. The PBOC conducted 80 billion yuan of reverse repos on Thursday.
The purchase rate for seven-day reverse repos worth 20 billion yuan was set at 2.45 per cent, 10 basis points higher than 2.35 per cent set on Wednesday, while 14-day contracts worth 20 billion yuan were set at 2.6 per cent, up from 2.5 per cent on Wednesday.