PBoC Higher Market Rates Amid Steady Growth of the Economy

The central bank of China raised money market rates as means of curbing financial risks and prevent a big impact on the economy that was successful and maintained its steady pace for the year.

The act was somehow a covert approach to avoid the adjustment of benchmark policy rates just a few hours after the awaited U.S. Federal Reserve rate hike.

This prompted Beijing to maintain tighter policy rates with the upcoming data earlier this day such as industrial output, investment, and property market which supports the pace of growth as the world’s second-biggest economy.

The action over the policy rates indicates that Fed policies have a big impact on the decision making of the PBoC, according to Tommy Xie, an economist at OCBC. Moreover, Xie said that there is no indication of exhaustion in “de-leveraging” financially.

The Chinese central bank raised its rates by 5 basis points on repurchase agreements or reverse repos for the 7-day and 28-day tenors that are available for open market operations. The one-year medium-term lending facility also increased by 5 basis points. This was the first time for the PBoC to it raised its rates since March yet, the interest rates in the market also increased as the government adjusts their rates to lessen the leverage and debt in the economy.

The effect of this move from the central bank is reflected on other data including the industrial output with 6.1 percent year-on-year growth in November compared to the forecasted figure of 6.0 percent, but it is still lower than the 6.2 percent growth in October.

The fixed-asset investment report showed a decline of 7.2 percent in the first eleven months of the year which followed the expectations. However, it is slower than the 7.3 expansion for months up to October.

For the year, the Chinese economy gained this year due to higher demand for exports which followed the global growth along with other trade-dependent Asian countries. The country had a strong first nine month for the year with the strong pace of growth with 6.9 percent growth due to a strong manufacturing sector buoyed by the government-led infrastructure expenditures amid a robust property market and unpredicted fortitude of exports.