PBoC hikes medium term lending facility rate by 10bps

The Chinese central bank, People’s Bank of China has hiked the interest rate for six month medium term lending facility and one year medium term lending facility by 10 basis points. This is the first time the central bank adjusted one of its policy interest rates higher since July 2011, noted OCBC Bank in a research report.

Even if the PBoC has kept the benchmark one-year lending and deposit rate on hold since October 2015, the adjustment of its MLF rate evidently affirmed that China’s cycle of monetary policy easing has officially ended, stated OCBC Bank.

The Chinese central bank hiked the rates mainly due to four factors including worries regarding rapid expansion of credit in January, commitment to curtail financial risk, positive growth outlook and rising inflationary pressure. But it might be too soon to come to a conclusion that China has begun the tightening cycle. The next significant thing to monitor is the interest rate for open market operation.

“The tight bias monetary policy may not bode well for risk sentiment. As such, we may see rising volatility in both bond and equity markets. However, the tight liquidity may be good news for RMB,” said OCBC Bank Economist Tommy Xie.