From PIMCO:
On 16 March, the PBOC hiked the seven-day reverse repo (repurchase) rate from 2.35% to 2.45% and raised the whole liquidity facility curve by 10 bps (including seven-day, 14-day and 28-day reverse repos and the standing and medium-term lending facilities).
- In its statement, the PBOC cited the Fed’s hike and improving exports as the global catalysts for the rate increase and pointed to dropping real rates, strong credit expansion and property reflation as the domestic factors.
- In general, the PBOC considers rising money market rates and tighter liquidity helpful in its effort to “deleverage and curb the property bubble.”
- Certainly, the hawkish shift also helps to support the yuan’s crawling peg against the U.S. dollar as the Fed continues to raise U.S. interest rates.
With this second tightening in 2017, Chinese policymakers have clearly shifted from “growth” mode to “stability, risk management” mode; indeed, in early March, China lowered its official growth target to 6.5% from 6.5%-7.0%.
