Rate Hike Suggests China Is Taking A Flexible Interest Rate Regime

The People's Bank of China repriced the cost of short-term funding by raising the 7-day reverse repo rate by 10 basis points to 2.35% from 2.25% previously, indicating policymakers are inclined to take a more flexible interest rate regime going forward, says ANZ AG in a research report today.

Today’s action is significant as the 7-day reverse repo rate was kept at 2.25% since October 2015 and represents the first major change for over a year. It suggests the Chinese central bank is switching from maintaining a prudent monetary policy for the past 14 months to take a more flexible and fluid policy stance.

ANZ said that it would stick to its call for a prudent monetary policy stance in 2017, but needs to reinterpret the latest policy actions and watch closely for the central bank's next moves.

The Chinese central bank's action seems...

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