China stands firm on monetary stance, unmoved by Fed's rate hike

Updated 2017-06-16 09:28:40 Xinhua
U.S. Federal Reserve Chair Janet Yellen speaks during a news conference in Washington D.C., capital of the United States, on June 14, 2017. U.S. Federal Reserve on Wednesday raised the benchmark interest rates for the fourth time since December 2015, and unveiled plans to start trimming its balance sheet. (Xinhua/Yin Bogu)

U.S. Federal Reserve Chair Janet Yellen speaks during a news conference in Washington D.C., capital of the United States, on June 14, 2017. U.S. Federal Reserve on Wednesday raised the benchmark interest rates for the fourth time since December 2015, and unveiled plans to start trimming its balance sheet. (Xinhua/Yin Bogu)

China's central bank remained firm on its monetary policy stance, unmoved by the United States Federal Reserve rate hike, after months of precautions preparing its financial system for the impact.

China's financial markets remained calm Thursday, after the Fed announced the widely-anticipated quarter-percentage-point increase in the benchmark interest rate, the second hike this year.

The benchmark Shanghai Composite Index edged up 0.06 percent to close the day at 3,132.49 points.

Interest rates for the central bank's reverse repo operations were left unchanged Thursday. The rates went up 10 basis points hours after the Fed's rate hike in mid-March.

Unlike mid-March, China's money market rates are now much higher, economic growth has shown signs of moderation and the yuan is stronger, reducing the necessity for China to follow the Fed's move, said Ren Zeping, chief economist at Founder Securities.

PRUDENT, NEUTRAL

On Thursday, the People's Bank of China (PBOC) pumped a net 90 billion yuan (13.25 billion U.S. dollars) into the financial system via reverse repos to ease a liquidity strain caused by tax payments and maturing reverse repos.

The rate for the seven-day reverse repos remained at 2.45 percent, the 14-day rate stayed at 2.6 percent and the 28-day rate was unchanged at 2.75 percent, the PBOC said on its website.

As China shifted to the prudent and neutral monetary policy, the central bank has left the benchmark interest rates on hold, and used expanded policy tools to manage liquidity.

Rates for the reverse repos and medium-term lending facilities have gone up several times this year, accompanying China's efforts to contain leverage and financial risks.

The deleveraging campaign revved up in recent months with tightening scrutiny against risky financing and shadow banking. It has pushed up interbank money rates and added pressure on a liquidity strain usually seen in June, as companies have to pay taxes and banks scramble for funds to meet quarter-end health checks.

In Thursday's interbank market, the one-year Shanghai Interbank Offered Rate (Shibor), a key indicator of interbank borrowing costs, edged up to a more-than-two-year-high of 4.4264 percent.

Shibor for one-month loans rose 1.2 basis points to 4.6946 percent, also the highest level in more than two years.

Analysts said if China followed the Fed, the country's financial sector, which is already grappling with a credit strain and higher funding costs, would be further squeezed.

However, Northeast Securities said in a report that the possibility of following suit in the second half of the year should not be ruled out with another Fed rate hike widely expected within 2017.

Hours before the Fed's decision, the PBOC said it will continue to push forward financial deleveraging while managing the "strength and pace" of its policies to stabilize market expectations, and striking a balance between deleveraging and stable liquidity.

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