China's Central Bank Raises Market Rates Hours After Fed Move
December 14 2017 - 1:59AM
Dow Jones News
BEIJING--China's central bank followed a U.S. interest-rate
increase with one of its own to blunt the effect of the Federal
Reserve move on the Chinese economy, which cooled further in
November.
The People's Bank of China on Thursday raised two key short-term
interest rates, hours after the U.S. Fed's third interest-rate
increase this year. Economists say they expect the world's
second-largest economy to feel more pains of soaring funding costs
in 2018. Fed officials have penciled in three quarter-point rate
increases for the year and two such increases each in 2019 and
2020.
The Chinese central bank raised the rates it charges commercial
banks on seven-day and 28-day loans by 0.05 percentage point each.
It also raised rates for a medium-term liquidity instrument. The
increases were smaller than 0.10 percentage-point moves in the
first quarter, and the bank left the benchmark policy rates
unchanged.
The moves indicate that China's policy makers are trying to
strike a balance between easing pressure on the yuan and reducing
capital flight on one hand, and managing higher borrowing costs on
the other.
The PBOC also injected 288 billion yuan ($43.52 billion) of
liquidity into the banking system on Thursday to offset the effects
of the rate increases.
"The rate increases by the PBOC risk exerting more pressure on
the Chinese economy, which is widely expected to slow down in 2018
amid a cooling property market and slackening export demand," said
Liu Xuezhi, an economist with Bank of Communications.
The Chinese economy has already showed signs of softness in the
final quarter of the year. Growth in China's industrial output, a
rough proxy for economic expansion, decelerated for a second
straight month to 6.1% in November, compared with a 6.2% increase
in October, according to data from the National Bureau of
Statistics on Thursday.
While there was a clear pickup in external demand last month,
industrial production was likely hurt by an antipollution crackdown
in the country's northeast, said Julian Evans-Pritchard, an
economist with Capital Economics.
Growth in fixed-asset investment slowed for a fifth straight
month to 7.2% in the first 11 months of 2017 from a year earlier,
compared with a 7.3% increase over the January-October period.
The deceleration last month was mainly due to slower property
investment. Such investment, including commercial and residential
real estate, grew 7.5% in the January-November period, compared
with a 7.8% rise in the first 10 months of the year.
Retail sales, one of the bright spots in the Chinese economy
this year, also came in lower than expectations at 10.2%.
Economists expected a 10.3% increase given record online sales on
the "Singles Day" shopping spree midmonth.
China observers earlier this year had estimated a significant
slowdown in growth after aggressive moves to reduce excessive
borrowing and restrict home speculations. Instead, the Chinese
economy grew 6.9% in the first half and only lost steam slightly in
the third quarter.
Economists attribute the unexpected strength to strong home
sales, more government spending on infrastructure projects and
robust global demand for Chinese goods. But with additional
interest-rate increases and continued tightening in the market, the
economic outlook may dim, Mr. Liu with Bank of Communications
said.
OCBC economist Tommy Xie said the PBOC's rate increase showed
that Fed policy is still one of the parameters for Beijing's
policy.
"The adjustment of China's money-market-rate increase will
continue to remind investors that financial deleveraging is a
long-haul project for China," said Mr. Xie.
However, due to the concerns around growth, economists say a
benchmark-rate increase, in addition to Thursday's market-rate
increases, is unlikely as it would lift borrowing costs for all
bank loans.
Grace Zhu and Shen Hong
(END) Dow Jones Newswires
December 14, 2017 01:44 ET (06:44 GMT)
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