China follows US Fed's decision to strengthen monetary policy

China’s central bank edged borrowing costs higher after the Federal Reserve’s decision to tighten monetary policy.

Hours after the Fed’s quarter-percentage-point move, the People’s Bank of China increased the rates it charges in open-market operations and on its medium-term lending facility, though making smaller adjustments than the US central bank. 

China also boosted rates on another policy tool, the standing lending facility, according to two people familiar with the matter, who asked not to be named as they’re not authorised to talk to media.

Investors took the news in stride. Analysts said the modest moves show the PBOC wants to balance the need to tighten monetary policy with avoiding jolting its markets. China’s rate adjustments "help markets form reasonable expectations for interest rates," the PBOC said in a statement on its website on Thursday. It also prevents financial institutions from adding excessive leverage and expanding broad credit supply, it said. The cost of seven-day and 28-day reverse-repurchase agreements was raised by five basis points. 

That followed an increase in mid-March. The cost of funds lent via MLF was also increased by five basis points, with the one-year rate raised to 3.25 per cent. 

Rates on SLF borrowings with tenors from overnight to a month went up by the same amount, the people familiar said.