In raising interest rates Saturday evening, China’s central bank signalled its strong determination to reduce domestic liquidity by using all the means at its disposal, Forbes reports.
The People’s Bank of China raised the benchmark one-year lending rate by 27 basis points to 6.39% and the one-year deposit rate to 2.79%, giving investors time to digest the move before markets reopened for trading Monday.
Forbes cited Bank of America currency strategist Qing Wang believes that the rate hike is aimed primarily at deflating the domestic stock market, and some analysts expect that foreign-listed Chinese stocks could drop as much as 10%.
It was the third interest rate hike since April, coupled with five rounds of increases to banks’ reserve ratios since June, with perhaps three more expected before the year end.
“it is one more signal that PBOC intends to have a better control on bank lending,” said Forbes, citing May Yan, a banking analyst at Moody’s, as saying. “It signals that it wants to use a different approach to fight the liquidity issue.”