The People's Bank of China raised the reverse repo rates by 5 basis points early in the morning. The reaction to this decision was as follows:
- Standard Chartered Bank
The People's Bank of China is expected to follow the Federal Reserve's move to raise rates this year. The range will depend on the tone of the Fed and the reaction of the Dollar Index, which is still largely considered.
- Westpac Bank
The action is consistent with the cautious monetary policy stance. There is good reason to raise interest rates due to the gap between market rates and the fact that the Bank of China has not injected liquidity with the rate hike decision as some would have expected, confirming our view that liquidity is likely to rise after the top Legislature’s meeting earlier this month.
- ANZ Bank
The interest rate decision confirms that China's interest rate hike will continue with the People's Bank of China Governor Yi Gang. The efforts to reduce the intensive deleveraging and the potential rise in inflation are likely to remain a monetary tightening policy. The People's Bank of China plans to raise interest rates gradually to ensure stability in the yield spread between Chinese and US bonds, to prevent the outflow of capital outside China and the instability in the FX market.
