China raises market rates to fend off financial risks

BEIJING/SHANGHAI: China’s central bank yesterday nudged up money market rates as authorities sought to defuse financial risks without imperilling the economy, a balancing act that they have managed successfully so far this year as activity remained broadly steady.

The world’s second-biggest economy has started to cool in recent months amid a government crackdown on high-risk lending and polluting factories, and the move by the People’s Bank of China (PBoC) — coming hours after an anticipated US Federal Reverse rate hike — signalled that Beijing will keep policy tighter next year.

A flurry of data on the day highlighted the economic impact of government efforts to wean China off its yearslong addiction to debt, with industrial output, investment and property market all backing evidence of a moderation in momentum.

The PBoC increased rates on reverse repurchase agreements, or reverse repos, used for open market operations by five basis points for the seven-day and 28-day tenors. It also increased rates on its oneyear medium-term lending facility (MLF) also by five basis points.

Analysts said the rate hikes, widely seen as a backdoor approach that avoids the need to raise benchmark policy rates, would not impede activity though they signalled a commitment by authorities to continue curbing leverage.

“It’s more a symbolic move which helps stabilise market expectations after the Fed rate hike,” said Wen Bin, an economist at Minsheng Bank in Beijing.

“They want to narrow the gap between operating interest rates and market interest rates for financial institutions, otherwise it could give financial institutions the wrong impression and lead to arbitrage and an increase in leverage.”

It was the first rate increase by the Chinese central bank since March, but market interest rates have risen on their own in the interim as the government pursued a range of policies to lower debt in the economy.

That has dragged on activity, a fact underscored by the National Bureau of Statistics data releases which showed industrial output was up 6.1% in November year-on-year, versus forecasts for an increase of 6%, but below the 6.2% gain in October.

China’s fixed-asset investment growth also slowed to 7.2% in the JanuaryNovember period, from the 7.3% expansion in the January-October months.

The data also showed growth of private investment slowed a touch to 5.7% in January-November.

Retail sales gained 10.2% in November on-year, just above the prior month, likely boosted by China’s annual 24-hour shopping binge on Nov 11, known as Singles’ Day, when sales hit $38.25 billion — exceeding combined revenue for Black Friday and Cyber Monday in the United States.

Taken together, the data suggest economic growth is still expected to easily meet or beat the government’s full-year target of around 6.5% and signalled that China has sufficient headroom to keep policy tight over the next year.