China’s central bank starts Year of the Rooster with ‘groundbreaking’ broad rise in money market rates

China’s central bank has surprisingly raised money market rates across the board on the first working day in the Year of the Rooster – sending a clear signal that Beijing is tightening its monetary policy in the face of pressures threatening to weaken the yuan.

In its open market operation on Friday, the seven-day repo rate, a major interest rate between the central bank and commercial banks in the interbank market, was increased to 2.35 per cent from the 2.25 per cent rate before the start of the Lunar New Year holiday; the 14-day and 28-day repo rates were also increased by 0.1 percentage points.

A repo rate is the discounted rate at which a central bank repurchases government securities from commercial banks.

The People’s Bank of China said in a separate statement that it had raised the rates of standing lending facility (SLF) loans on Friday. The overnight SLF rate has been raised to 3.1 per cent from 2.75 per cent in January. Rates for seven-day and one-month SLF loans have also been increased.

Friday’s money market rate increase was unusual because money market rates tended to fall following past Lunar New Year holidays.