China opts to keep short-term borrowing rates unchanged after Fed hike

The headquarters of the People's Bank of China, the country's central bank, pictured in Beijing, on Sept 28, 2018.
The headquarters of the People's Bank of China, the country's central bank, pictured in Beijing, on Sept 28, 2018. PHOTO: REUTERS

SHANGHAI (REUTERS) - China's central bank left its short-term borrowing rates unchanged on Thursday (Dec 20), choosing not to follow its US counterpart, which raised its benchmark rate just hours earlier.

The decision follows the bank's announcement Wednesday of a new lending tool, the Targeted Medium-Term Lending Facility (TMLF), aimed at spurring lending to smaller firms.

The People's Bank of China (PBOC) kept the interest rate on seven-day reverse bond repurchase agreements at 2.55 per cent, and kept the 14-day reverse repurchase rate at 2.7 per cent, it said in a statement on Thursday.

On Wednesday, the US Federal Reserve raised its benchmark fund rates, the fourth such increase this year, but the PBOC has only followed suit once, increasing its short- and medium-term interest rates by 5 basis points in March.

The world's two largest economies have adopted diverging policy paths this year, with China leaning towards an easing monetary and credit stance to reduce financial costs for private business and support the broad economy.

The PBOC has made four targeted reductions to the amount of money that banks are forced to hold in reserve, known as reserve requirement ratios (RRR), so far this year.

The 7-day reverse repo is a type of short-term loan the central bank uses to increase liquidity and influence other rates in the banking system.