Xinhua, Beijing :
On the first working day of the Year of the Rooster, China’s central bank surprised financial markets by raising lending rates to banks, widely interpreted as a shift towards neutral monetary policy as economic fundamentals improve.
The People’s Bank of China (PBOC) announced Friday, a 10 basis point rise in the interest rate of open-market operations through reverse repurchase agreements.
The central bank also increased interest rates on standing lending facilities, another tool to support liquidity.
The rate hikes are regarded by analysts as flexible policy tools for the central bank to guard against financial risks and curb asset bubbles, as the economy stabilizes in an uncertain environment.
China reported 6.7 percent GDP growth in 2016, lower than in recent years but within the target range.
This year the government is classing its monetary policy as “neutral,” while promising to better adjust the money supply to ensure stable liquidity and adapt to changes in monetary tools.
A note from Chinese investment bank CICC said the rate hikes were “a further signal of exit from monetary easing” and “a step to push forward financial deleveraging.”
“A moderate increase in funding costs is essential to dampen the growth of broadly defined credit,” said CICC.
In fear of further tightening, Chinese shares slipped Friday, with the benchmark Shanghai Composite Index closing 0.6 percent lower. The smaller Shenzhen Component Index closed 0.47 percent lower.
On the first working day of the Year of the Rooster, China’s central bank surprised financial markets by raising lending rates to banks, widely interpreted as a shift towards neutral monetary policy as economic fundamentals improve.
The People’s Bank of China (PBOC) announced Friday, a 10 basis point rise in the interest rate of open-market operations through reverse repurchase agreements.
The central bank also increased interest rates on standing lending facilities, another tool to support liquidity.
The rate hikes are regarded by analysts as flexible policy tools for the central bank to guard against financial risks and curb asset bubbles, as the economy stabilizes in an uncertain environment.
China reported 6.7 percent GDP growth in 2016, lower than in recent years but within the target range.
This year the government is classing its monetary policy as “neutral,” while promising to better adjust the money supply to ensure stable liquidity and adapt to changes in monetary tools.
A note from Chinese investment bank CICC said the rate hikes were “a further signal of exit from monetary easing” and “a step to push forward financial deleveraging.”
“A moderate increase in funding costs is essential to dampen the growth of broadly defined credit,” said CICC.
In fear of further tightening, Chinese shares slipped Friday, with the benchmark Shanghai Composite Index closing 0.6 percent lower. The smaller Shenzhen Component Index closed 0.47 percent lower.
