Central Bank of China Keeps Policy Rate Unchanged

The central bank of China kept some of its policy rates unchanged in a liquidity operation on Tuesday.

The surprise decision came a day before the U.S. Federal Reserve is expected to delivery its first interest rate hike in three years and market strategiests say Beijing may want to avoid widening policy divergence for the time being.

The People’s Bank of China (PBOC) said it would keep the rate on 200 billion yuan ($31.44 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.85% from the previous operation.

PBOC attributed the move to “maintaining banking system liquidity reasonably ample”, according to an online statement.

Ken Cheung, chief Asian FX strategist at Mizuho Bank, said the PBOC avoided adjusting its key interest rates ahead of the Fed’s policy meeting, at which the U.S. central bank is widely expected to raise interest rates.

“But the PBOC will ease monetary policy further by lowering policy interest rates in order to reach the government’s annual growth target of around 5.5%,” Cheung said.

Major central banks including United States, Britain and Japan are scheduled to announce rate hikes this week. However, divergence of policy in China could result in capital outflow.