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China’s central bank has raised interbank interest rates in a move designed to limit investors’ interest in moving money from China to the US following the Federal Reserve’s interest rate rise overnight.
While China’s monetary policy stance is officially neutral, it has increasingly used rates in the short-term money markets as a means of tightening policy in a more subtle fashion – and help its efforts to curb capital outflows in the process.
On Thursday the People’s Bank of China raised interest rates on seven, 14 and 28-day reverse repos by 10 basis points to 2.45 per cent, 2.3 per cent and 2.75 per cent, respectively. It emphasised that the move reflected market conditions and did not indicate a change in policy.
The bank said the move “mainly reflects recent changes in external and domestic factors influencing market supply and demand” and was “not at all a rate rise” in the sense of monetary policy since its benchmark deposit and lending rates remained unchanged.
Zhou Hao, emerging markets economist at Commerzbank, said that since most loans are benchmarked to policy rates, Thursday’s rate rise in the inter-bank market primarily reflected a desire to ease downward pressure on the renminbi.
“Looking forward,” he added, “we need time to see whether the rate hike in the inter-bank market will pass through to the bank loans.”
The PBoC does not target a single rate as its central bank peers do, and direct transmission of policy from lifting short-term rates to longer-term ones is never a given in the country’s rapidly-developing onshore market.