China follows US Fed by raising money market rates
The last hike was in March, when the People’s Bank of China responded to a similar move across the Pacific
China’s central bank raised its interbank policy rates by 5 basis points on Thursday, hours after the US Federal Reserve lifted the US benchmark, signalling that Beijing is watching policy moves across the Pacific and is ready to contain capital outflow risks.
The People’s Bank of China (PBOC) has been putting on a brave face about interest rate rises in the US and has kept its benchmark deposit or saving rates, the most important in China, unchanged for more than two years under a “prudent” monetary policy stance.
But on Thursday, China’s central bank raised the seven-day reverse repo rate to 2.5 per cent and the 28-day reverse repo rate to 2.8 per cent. At the same time, it also raised rate for one-year medium-term lending facilities, another liquidity management tool, by 5 basis points to 3.25 per cent, according to an online statement.
While such rates in the interbank market are not China’s benchmark policy rates, they are controlled by the central bank and serve as quasi policy rates in open market operations. By raising the rates, the central bank is charging banks a higher price on loans.
It is the first rise of its kind since March, when the PBOC responded to a similar move across the Pacific, but it was smaller than the March increase of 10 basis points. When the Fed raised rates in June, China did nothing.
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Former PBOC economist Ma Jun said China’s move on Thursday was symbolic rather a serious step to raise rates.
