SHANGHAI: China gingerly raised a key short-term interest rate on Thursday following the US Federal Reserve Bank’s move overnight, in a symbolic reminder that Beijing is keeping an eye on global market trends even as it cracks down on financial risks at home.
The People’s Bank of China (PBOC) said it had increased the rate on 7-day reverse repurchase agreements by 5 basis points (bps) to 2.55 per cent. Reverse repos are one of its most commonly used tools to control liquidity in the financial system.
The Fed raised US interest rates by 25 bps, or a quarter of a percentage point, on Wednesday and forecast at least two more hikes for 2018.
The PBOC’s move had been widely expected and was its first major policy decision under new Governor Yi Gang, who was appointed by parliament on Monday as part of a sweeping reshuffle of China’s cabinet under ever-stronger President Xi Jinping.
“I think it’s just a symbolic rate hike again to avoid the China-US rate spread from widening too much,” said Ken Cheung, senior FX strategist at Mizuho Bank in Hong Kong.
“A 5 bps hike is enough because yuan depreciation is not a big concern. And the PBOC is refraining from lifting rates aggressively amid the regulation reform and benign inflation pressure.”
The news prompted Chinese 10-year treasury futures for June delivery to rise as much as 0.3 per cent to 93.475. By 0700 GMT the most traded contract had eased to around 93.375, up about 0.2 per cent.
The PBOC also injected 10 billion yuan ($1.58 billion) into the financial system on Thursday. — Reuters
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