Reuters – China’s central bank on Thursday nudged up money market rates as authorities sought to defuse financial risks without imperilling the economy, a balancing act that it has managed successfully so far this year as activity remained broadly steady.
The move by the People’s Bank of China (PBOC) is widely seen as a backdoor approach that avoids the need to raise benchmark policy rates, and came hours after an anticipated US Federal Reverse rate hike.
It signalled that Beijing will keep policy tighter next year as a flurry of data earlier in the day, including industrial output, investment and property market, backed evidence of a moderation in growth in the world’s second-biggest economy.
“This (rate move) shows two things to us. First, Fed policy is still one of the parameters to influencing PBoC’s decision making,” said Tommy Xie, economist at OCBC, in a note to clients.
“Second, China shows no signs of fatigue in financial de-leveraging.”
The PBOC increased rates on reverse repurchase agreements, or reverse repos, used for open market operations by 5 basis points for the 7-day and 28-day tenors. It also said in a statement it increased rates on its one-year medium-term lending facility (MLF) also by 5 basis points.
It is the first time the Chinese central bank has raised rates since March, but market interest rates have risen on their own during the interim as the government pursues a range of policies to lower leverage and debt in the economy.
The impact of these steps were seen in Thursday’s National Bureau of Statistics data releases, with industrial output up 6.1% in November year-on-year, versus forecasts for an increase of 6%, but below the 6.2% gain in October.
China’s fixed-asset investment growth also slowed to 7.2% in the January-November period, in line with expectations, though lagging the 7.3% expansion in the January-October period.
Along with the rest of trade-dependent Asia, China’s economy gained a lift this year from an exports boom that has spurred a synchronized uptick in global growth.
The Asian economic powerhouse grew at a surprisingly strong pace of nearly 6.9% through the first nine months of this year, buoyed largely by a recovery in its manufacturing sector thanks to a government-led infrastructure spending spree, a resilient property market and unexpected strength in exports.
Growth has been cooling in the past few months, however, as higher borrowing costs combined with tighter rules on polluting factories crimped production and weighed on overall economic activity.