In a statement made today, China’s central bank announced its move to raise money market interest rates upwards. The move has been viewed by analysts as a response to the Federal Reserve’s decision to raise the U.S. benchmark.
While a number of economists expressed shock at China’s decision, the country itself stood firm. Beijing stated that it has made the move in order to prevent the destabilization of capital outflows without jeopardizing economic growth.
Speaking of the move, the People’s Bank of China stated that its increase was a “normal market reaction” to the U.S.’s decision. It added that the move would help keep interest rates steady.
Despite traction from economists, China pointed out that the increase is by a mere five points making it more of a gesture than a hard move. However, this is the first time that country’s central bank has raised its rates since March.
Speaking of the move, an analyst at the Bank of Communications, Chen Ji, stated that the move was merely a response to the step taken by the United States.
He said, “(It) doesn’t really impact borrowing costs, and fluctuations of this level are very normal in the interbank market”.
He further stated that China’s economy was not capable of handling a major increase in the market. Others, like senior Asian forex strategist Ken Cheung, agreed with Ji’s analysis.
Cheung stated that the rise, while surprising was merely “mild” and was probably the country’s manner of balancing “the risk of over-tightening amid the deleveraging process”.
The announcement was met by a major decline in China’s stock indexes with sectors such as infrastructure, IT, and financial shares registering the biggest drops.