Chinese open market operation rates up after Fed rate hike

0 Comment(s)Print E-mail Xinhua, March 22, 2018
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Interest rates for China's open market operations rose by 0.05 percent Thursday, following an interest rate hike by the U.S. Federal Reserve Wednesday.

The rate for seven-day reverse repos rose from 2.5 percent to 2.55 percent, the People's Bank of China (PBOC), the country's central bank, said on its website.

"The increase reflected market supply and demand changes, and represented the market's normal response to the U.S. Fed's rate hike," a PBOC statement said, citing an unnamed official in charge of open market operations.

The official said the rise is conducive to narrowing the gap between open market operations and money market rates, forming reasonable interest rate expectations, curbing irrational financing practices and stabilizing the macro leverage ratio.

Since this year, the PBOC has stepped up efforts in maintaining the stability of market liquidity to create a sound monetary environment for supply-side structural reform and high-quality growth, said the official.

The PBOC has increasingly relied on open market operations for liquidity management, rather than cuts in interest rates or reserve requirement ratios.

The U.S. Federal Reserve on Wednesday raised the benchmark interest rate by 25 basis points and signaled two more rate hikes in 2018, citing a "strengthened" economic outlook in recent months.

The Fed decided to raise the target range for the federal funds rate to 1.5 to 1.75 percent, "in view of realized and expected labor market conditions and inflation," according to a statement the Fed issued after it concluded a two-day meeting.

China has vowed to maintain a prudent and neutral monetary policy in 2018 as it strives to balance growth and risk prevention.

China's prudent monetary policy will remain neutral this year, with easing or tightening only as appropriate, according to the government work report this year.

Efforts will also be made to ensure a reasonable and stable level of liquidity, and increase the proportion of direct finance, particularly equity finance, said the report.

A research note from Haitong Securities said it is not very likely that China will raise benchmark interest rates after the United States in 2018, as inflation and general economic conditions do not support such moves.

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