China’s rate hike suggests a flexible interest rate regime

February 3, 2017

HONG KONG - The People’s Bank of China today repriced the cost of short-term funding by raising its 7-day reverse repo rate by 10 basis points to 2.35% from 2.25%, a move which ANZ Bank describes as significant because it suggests the PBoC will adopt a flexible interest rate regime in 2017.

“Since the PBoC has been keeping the reverse repo rate at 2.25% since October 2015, the change today is ground-breaking,” ANZ says. “This suggests that the central bank will change the onshore rates more frequently.”
ANZ says it sticks to our call for a prudent monetary policy stance,  but adds that “the policy actions associated with this stance need to be reinterpreted”.
“The bottom line is to prevent a cash crunch amidst deleveraging and deflating financial bubbles in certain sectors.
“Going forward, the PBoC will continue to focus on establishing a yield curve with interest rate risks tilted towards the upside.” www.live.anz.com (ATI).