Did China follow the Fed in raising rates? If yes, why is the central bank denying it?

Did China’s central bank follow in the footsteps of its US counterpart to raise interest rates? It has strangely become an issue of debate for China’s monetary policy watchers.

The facts on Thursday were pretty clear. A few hours after the US Federal Reserve raised the overnight fund rate by 0.25 percentage points, interest rates in China’s money market, or the borrowing costs charged by the central bank to commercial lenders, edged up 10 basis points for a number of transactions.

The People’s Bank of China published an unusual statement on its website explaining that the higher rates in the interbank market were a market response to the Fed’s move rather than a deliberate policy reaction and it didn’t mean any “interest rate increases” in China.

The criteria for whether China is raising interest rates are the benchmark loan and deposit rates, the central bank said. The interest rate changes in money market deals between the central bank and commercial lenders were decided “mainly by the market” and “shouldn’t be read into too much”, according to the central bank.

But the higher borrowing costs in China still attracted a lot of attention. After all, rates in reverse repurchase agreements and the medium-term lending facility, the monetary policy tools in adjusting liquidity, are influenced heavily, if not solely decided, by China’s central bank. At least, the central bank was tolerating money market rates to move higher on Thursday morning.