The Central Bank Of China Tightened Its Monetary Policy.

It is not the first time the central bank has followed the steps of the Federal Reserve to make monetary policy adjustments.

At the height of the global financial crisis, the Central Bank of China followed the steps of other six central banks to reduce their lending rates, including the previously announced interest rate cuts by the Federal Reserve.

As one of the roles in the global economic policy, China's central bank's interest rate reduction policy in October 2008 further strengthened its reputation as an emerging country.

Chua Hak Bin, a senior economist at Maybank, Malaya, Singapore, said: "the divergence of global economic growth has gradually pformed into growth synchronization, and the divergence of monetary policy is also a subjective statement of some of the stronger dollar makers.

Now, this divergence is also changing into policy synchronization.

On Thursday morning, the Central Bank of China also introduced its own interest rate adjustment measures in response to the rate increase measures just launched by the Federal Reserve.

In a seemingly odd but concerted move between China and the United States, the Central Bank of China tightened its monetary policy through multiple channels of liquidity provision.

The action of the Central Bank of China and the Federal Reserve's announcement of raising the benchmark interest rate by 0.25% are only 10 hours away.

The Federal Reserve's rate hike is the third increase in 10 years.

The unusual actions taken by the Central Bank of China and the US central banks to synchronize interest rates have also prompted Bloomberg to recall the mysterious "Shanghai Accord" of January 2016, which took place during the peak of last year's global capital market crisis.

As a result of closed door discussions, the day has been far from the public - but the market has been soaring to this day.

As Bloomberg said, this concerted action "responded to the commitments made by the group of 20 in Shanghai more than a year ago", and the expression of "careful calibration and clear communication" may not be empty.

Whether coordinated or not, China's Day

The conditions are similar to those in the United States.

Even though the stock market in China and the United States did not respond, the monetary policy of China and the United States was tightened simultaneously.

The people's Bank of China is responding to the fundamentals of growth, inflation and the stability of the financial system.

The central bank is paying attention to the reduction of food prices due to the suppression of the CPI price index, which has also given due attention to the issue of domestic asset bubbles and credit growth.

Therefore, for those who are curious about China's subsequent interest rate policy aiming at the benchmark interest rate or the RRR, it now seems to be able to put itself in a temporary hibernation period. Yao Wei, an economist from Societe Generale, has given an explanation both on the technical level and on the cause level.

As Yao Wei emphasized, the central bank's closely following the actions taken by the Federal Reserve is, at least in the right moment, very wise.

Moreover, judging from today's curve changes, the central bank has raised its main liquidity management tool interest rate by 10 basis points, far exceeding most previous expectations.

After the central bank launched the interest rate policy, the most important seven day reverse repurchase rate rose to 2.45%.

In its press release, the people's Bank of China stressed that the measures to raise interest rates among banks are simply to conform to the trend of market development rather than the real sense of raising interest rates.

Only the increase in benchmark lending rates and deposit rates can be regarded as a real policy of raising interest rates.

However, for the change of interbank interest rates, the central bank also listed four typical reasons for this rate hike: economic recovery, rising inflation (especially house price rise), strong credit growth and the launch of the Federal Reserve.

Measures.

However, the Central Bank of China still tends to adopt monetary tightening to match its neutral and sound policy stance.

This means that the adjustment of interbank liquidity and interbank interest rates may still be the main actions retained by the central bank.

This may be due to the fact that China's domestic CPI index is still at a low level.

Or there is another possibility that the central bank intends to shift its interest rate adjustment direction from the benchmark interest rate to the lending rate, and gradually turn to interbank interest rates. This is a good practice operation.

In any case, the central bank does not want the market trend to be ahead of its policy adjustment nor to tighten monetary policy.

In this regard, the Central Bank of China and the Federal Reserve's ideas are basically the same.

In China

In the policy thinking, the Fed's monetary policy and the currency spreads between China and the United States play a certain role.

Compared with the Fed's raising the interest rate by 25 basis points, the central bank's action to raise the rate of 10 basis points has little effect on the renminbi.

Therefore, this may not be a very important consideration.

However, the Fed's action provided an opportunity for China's central bank to take action, which seemed to support the central bank's view that interbank interest rate hike is "follow the market".

Taking into account the latest moves of the Central Bank of China, there are outsiders who believe that the stability of China's domestic economic growth will continue until the end of 2017.

Now, Societe Generale of France further expects that the adjustment of China's inter bank interest rates will rise by 20 basis points in the second quarter, and 10 basis points in the third quarter, and the interest rate will not be raised in the fourth quarter.

The development trend that deserves external attention is that as the result of the daily liquidity management of the Central Bank of China, the change of interbank market interest rate needs attention.

The changing trend of interest rates in these markets has led to changes in the interest rates of the Central Bank of China in regulating tools, and thus reflects the central bank's policy intentions in a more timely manner.

Before the central bank adopted today's measures, the average 7 day reverse repo rate of 28 days in China was above 50 basis points, higher than the low point since August 2016.

Finally, although China has traditionally avoided the positive criticism of the Fed's use of traditional channels for interest rate adjustment, an editorial article from China's traditional media has published.

The author of this editorial said that China should be vigilant against the "spillover effect" of the Fed's interest rate increase, and warned that the "self centred" US interest rate policy has triggered financial crises in many countries in history.

Finally, the media also warned that the Fed's rate hike policy may have a "serious impact" on the global economy.

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