The People’s bank of China augmented its short-term interest rates as the economy stabilizes signaling tightening of monetary policies. Although the economic growth did not meet the ideal target, The country’s GDP rose by 6.75 last year.This reaffirms the goal of the Chinese government to curb its capital outflows and avoid potential risks brought by the debt-driven stimulus. The adjustment in the interest rates starts on February 3, increasing the Reverse repurchase agreement to 2.35% from 2.25% by 10 basis points and the borrowing rates for near-term loans on Standing Lending facility (SLF). On the other hand, the medium-term long facility (MLF) was also raised, the first time for a rate hike since July 2011.
Analysts see this move as an approach to maintain policy flexibility to prevent a lackluster economy plus choosing to raise open market rates is more practical in the current global economic condition.
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