PBOC not to follow suit after U.S. Fed raises interest rate

The People's Bank of China (PBC), China's central bank, announced Thursday morning that it would not carry out open market operations for now, a decision which is widely interpreted that it is not going to raise its benchmark interest rates following the latest rate hike by the U.S. Federal Reserve, the Securities Times reported.

The PBC said in the announcement that it made this decision by taking into account multiple factors including the relatively high liquidity in China's banking system, the maturity of its lending to commercial banks as well as the payment for the issuance of government bonds.

PBC's decision came several hours after the U.S. Federal Reserve lifted its short-term rate, a key benchmark for many consumer and business loans in the U.S., by a modest quarter-point to a range of 2 percent to 2.25 percent amid the strong growth of the U.S. economy.

It was the third time this year that the Fed has raised its key interest rate, a widely-anticipated move that is in line with its schedule. The Fed also disclosed that it forecast another rate hike before the end of this year and would continue its credit-tightening effort over the next two years.

Central banks in a number of emerging economies including Bahrain, Saudi Arabia and the United Arab Emirates (UAE) have quickly reacted to the Fed's rate hike by raising their own benchmark interest rates by the same margin.

The Hong Kong Monetary Authority (HKMA) also lifted its base rate by 25 basis points to 2.5 percent in response to the Fed's latest move.

However, analysts say that it is unnecessary for the PBC to follow suit given China's current economic situation.

"It is more important for the Chinese government to further lower the borrowing cost for China's real economy," said Sheng Songcheng, counsellor to the PBC. "Raising the interest rate won't benefit the Chinese economy at present."

"It is unnecessary for the PBC to keep pace with the U.S. Fed," said Yu Yongding, a member of the Chinese Academy of Social Sciences (CASS). Yu stressed that China must maintain the independence of its monetary policy.