China reacts to Fed rate hike by nudging up key policy rate

BEIJING – China’s central bank responded to the U.S. Federal Reserve’s interest rate increase by nudging up a key policy rate Thursday on lending to commercial banks. It left the benchmark rate for borrowing by companies and the public unchanged.

The People’s Bank of China said it was responding to market forces by raising the rate charged by its one-year lending facility by 0.05 percentage points to 3.25 per cent. Rates paid on bank reserves rose by a similar margin.

“The change in interest rates is a result of market supply and demand, and at the same time is a normal market response to the Federal Reserve’s interest rate hike,” said a central bank statement.

There was no change in the rates for borrowing by companies and the public and for deposits.

Beijing has tightened controls on the movement of money out of China to stop an outflow of capital, which could be worsened if higher U.S. rates attract investors with the possibility of higher returns.