China has hiked short-term interest rates again

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For the second time in six weeks, the People’s Bank of China (PBoC) has lifted short-term interest rates.

In a statement posted on the bank’s website earlier today, it announced that it increased interest rates by 10 basis points on both its medium-term lending facility (MLF) and its open market operation (OMO) reverse repurchase agreements, according to Reuters.

That followed a similar move from the bank following the conclusion of Lunar New year celebrations in early February.

For MLF loans, the rate on 6-month now stands at 3.05%, with the one-year rate at 3.20%.

The rate on open market operation reverse repos for 7, 14 and 28-day tenors now stands at 2.45%, 2.60% and 2.75% respectively.

Reverse repos are used by central banks to drain liquidity from a nation’s financial system. The MLF is used by the PBoC to manage medium-term interest rates in the banking system and money markets.

The PBoC said that the increase did not signal a change in monetary policy, noting that flexibility in rates was favourable for deleveraging and risk prevention.

Its statement said that the increase in short-term borrowing costs reflected changes in capital supply and demand both domestically and abroad.

The move from the PBoC coincided with the decision from the US Federal Reserve to increase interest rates by a further 0.25% at the conclusion of its March policy meeting.

Despite the increase in short-term Chinese borrowing costs, Chinese stocks have taken the increase in their stride, sitting up by between 0.5 to 0.7%.

Commodity futures have weakened a touch, while the USD/CNY currently trades at 6.8940, down 0.28%.

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