China's central bank lifted its short-term interest rates, for the second time this year, hours after the U.S. Federal Reserve hiked its rate by a quarter point.
The People's Bank of China on Thursday raised the 7-day reverse repo rate by 10 basis points to 2.45 percent. Similarly, 14-day reverse repo rate was lifted by 10 basis points to 2.6 percent.
The 28-day repo rate was also increased by 10 basis points. The bank had previously raised all these three rates in February.
Further, the PBoC also hiked the rate on its Medium-term Lending Facility by 10 basis points. This move would raise the cost of longer-term funds it provides to banks.
In a statement, the central bank said markets expected higher borrowing costs in the light of rising domestic inflation, in addition to Fed's rate increases. Today's decision doesn't equate to interest-rate hikes, the bank said.
The move came after the U.S. Federal Reserve on Wednesday lifted its target range by 25 basis point to 0.75 percent to 1 percent.
The immediate effect on interbank repo rates by the China's central bank action is likely to be small as they were already trading well above the rate offered by the PBoC, Julian Evans-Pritchard, a China economist at Capital Economics, said.
The timing of today's move, along with the mention of Fed rate hikes in the PBoC's accompanying statement, suggests that the PBoC may have been partly motivated by a desire to follow the Fed in order to avoid additional downward pressure on the renminbi, the economist noted.
However, the economist said it would be wrong to characterize today's move as simply a response to the Fed.
by RTT Staff Writer
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