SHANGHAI, Feb 3 (Pakistan Point News - APP - 03rd Feb, 2017 ) : China's central bank on Friday raised two key interest rates for the first time since 2013 in a monetary tightening as liquidity concerns ease following the Chinese New Year cash crunch. Analysts said the move indicated the People's Bank of China was likely to actively tweak monetary policy this year as it seeks to maintain stable economic growth while preventing asset bubbles. The bank raised the interest rate for the seven-day repurchase agreement to 2.
35 percent from the previous 2.25 percent, a statement on its website showed. The longer 14- and 28-day repo rates were also hiked by 10 basis points. They are all key tools used by the central bank to adjust monetary policy. It marked the first increases for the two shorter contracts since 2013 and the first for the 28-day contracts since 2015, Bloomberg news reported. The step came on the first trading day after the week-long Chinese New Year holiday.
The holiday is typically preceded by a market liquidity crunch as employers pay staff and people withdraw money for holiday spending. "Today's action is significant as it suggests the PBoC will adopt a flexible interest rate regime in 2017," Raymond Yeung, chief Greater China economist at ANZ Research, said in a research note, describing the move as "ground-breaking". China's government said at its annual economic meeting in December that it would maintain a "prudent and neutral" monetary policy for 2017, state media reported earlier.
That followed looser policy and strong fiscal support for growth last year which created a property boom and helped stabilise China's economy, whose rate of expansion has slowed in recent years. The economy grew 6.7 percent for all of last year, while the fourth-quarter growth of 6.8 percent marked the first quarterly improvement since late 2014. Zhou Hao, an economist at Commerzbank AG, told Bloomberg the rate move was meant to "target bubbles" in sectors ranging from housing to commodities. China International Capital Corporation said in a report that an adjustment in benchmark interest rates looked unlikely soon due to the uncertain economic outlook. Chinese stocks lost ground after the move, with the benchmark Shanghai index down 0.60 percent while the Shenzhen composite was 0.39 percent lower at the close Friday.