China has raised its short-term market interest rates by 5 basis points (bps) following the US Federal Reserve Bank’s move overnight.
The People’s Bank of China (PBOC) hiked the interest rate on Thursday, 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 PBOC said it had increased the rate on seven-day reverse repurchase agreements, or reverse repos, 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, reports Reuters.
The central bank’s move had been widely expected. It was the central bank’s first major policy decision under new Governor Yi Gang, who was appointed by parliament on Monday.
Ken Cheung, senior FX strategist at Mizuho Bank in Hong Kong, said, “I think it’s just a symbolic rate hike again to avoid the China-US rate spread from widening too much.”
“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,” he said.