China’s central bank raised its short-term interest rates for the first time this year after the U.S. Federal Reserve tightened its monetary policy.
The People’s Bank of China on Thursday lifted its 7-day reverse repo rate by 5 basis point to 2.55 percent from 2.50 percent. The bank last raised the rate in December by a similar rate.
This was the first rate action after the appointment of Yi Gang as central bank governor.
The increase in rate is in line with market expectations and a normal reaction to the Fed’s rate hike, the PBoC said in a statement.
Of course, the timing of PBOC moves, the day after Fed hikes, suggests that they are driven by more than just a desire to narrow the gap between policy rates and market rates, Julian Evans-Pritchard, an economist at Capital Economics, said.
The economist said the second motivation for the hikes is simply to give the impression of following the Fed, in order to try to minimize capital outflows and downward pressure on the renminbi.
Evans-Pritchard expects the PBoC to allow market rates to fall further in the coming quarters in response to cooling economic activity.
The benchmark one-year lending rate has been unchanged since October 2015.