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March 17, 2017

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Fed’s hike sees PBOC lift rates of market tools

THE People’s Bank of China yesterday raised the interest rates of open market operation tools after the US Federal Reserve hiked interest rates overnight, but the Chinese central bank said the move did not indicate a change in its monetary policy stance.

Hours after the US rate hike, the PBOC raised open market operation rates, or interest rates it charges commercial banks in the money market, on the seven-day, 14-day and 28-day loans each by 0.1 percentage points.

These loans are known as reverse repurchase agreements, or repos, and they dictate funding costs in the interbank market.

The PBOC also raised the interest rate by 0.1 percentage points on the medium-term lending facility, a form of loan, to 22 financial institutions after a similar move on January 24.

In a statement explaining the move, the PBOC said the higher rates are the result of changes in market supply and demand and do not indicate a shift in China’s monetary policy stance.

China has vowed to pursue a prudent and neutral monetary policy in 2017.

The central bank injected 383 billion yuan (US$56 billion) into the market via the operations yesterday.

The PBOC said its action is also essential because financial institutions were aggressive in expanding credit, home prices rose quickly in some cities, and the global yield curve is moving upward after the US Fed raised interest rates twice since December.

Higher money market rates will prevent asset bubbles and control risks under current conditions, in line with government priorities this year, the statement said.

Analysts said the PBOC’s immediate move suggests greater synchronization between the world’s two top economies.

“The move could keep the interest rate gap between China and the US at an appropriate level, preventing pressure on capital outflow and yuan depreciation,” said Liu Dongliang, senior analyst at China Merchants Bank.


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