China’s Central Bank Raises Borrowing Costs After Fed Rate Hike

(Bloomberg) — China’s central bank increased the cost of short-term loans to commercial lenders, tightening policy in step with the U.S. Federal Reserve.

The People’s Bank of China raised the interest rates it charges on reverse-repurchase agreements by five basis points, the central bank said in a statement.

Analysts expect the central bank to make modest increases in money-market rates in 2018 as it aims to keep up the pressure on deleveraging and prevent too much divergence with U.S. policy, according to a Bloomberg survey. The PBOC hasn’t changed the benchmark one-year lending rate since October 2015.

Thursday’s decision was the first following the appointment of Yi Gang as governor, and the former number two at the central bank has pledged to maintain the stance of “prudent and neutral” policy. The PBOC has avoided using benchmark interest rates in an effort to avoid weighing too much on the broader economy as it seeks to curb leverage in the financial sector, instead pushing up rates on short- and medium-term loans.

Higher funding costs are helping China stay in step with the Fed’s tightening, as the spread between China’s 10-year government bonds and the Treasuries narrowed to the smallest in about a year.

The PBOC increased the cost of seven-day reverse-repos to 2.55 percent, and skipped the use of 14-, 28- and 63-day agreements.

To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net, Yinan Zhao in Beijing at yzhao300@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Jeffrey Black at jblack25@bloomberg.net, James Mayger

©2018 Bloomberg L.P.

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