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Higher rates show China’s resolve to prevent financial risks: experts

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The People's Bank of China's (PBC) measure to raise reverse repurchase agreements (reverse repos) and standing lending facility (SLF) short-term loan rates signals that the country's monetary policy is shifting from a "loosening bias" to a neutral one.


Experts said the move shows the country's resolve to control market liquidity and prevent financial risks Wholesale Los Angeles Lakers Jerseys , which has limited impact on the interest rates of depository and loans.


China's central bank on Friday announced it would raise the seven-day reverse repo rate by 10 basis points to 2.35 percent. It also increased the rate for 14-day reverse repos to 2.5 percent from 2.4 percent, and the 28-day open market operations rate to 2.65 percent from 2.55 percent, according to the official website of the central bank.


Reverse repo is a process in which a central bank purchases securities from banks with an agreement to sell them back in the future, a means of pumping money into the market to preserve liquidity.


The PBC also increased the lending rates on its SLF short-term loans by up to 35 basis points.


SLF is a tool used by the PBC to give short-term liquidity support to policy banks and commercial lenders.


Experts believe the central bank has raised interest rates for short-tem loans in order to tighten market liquidity and to control financial risks.


"In the past two years, economic policies tended to be loose in the first half of the year while tightened in the second half. For example Wholesale Los Angeles Clippers Jerseys , the central bank twice lowered required reserve ratio and interest rates from February to May 2015… the 'loosening bias' policy led to bubbles in the stock and property markets," said Li Xunlei, chief economist at Zhongtai Securities.


With an increased emphasis on preventing financial risks and strengthening financial supervision in 2017, the central bank's move sent a signal to the market that China's monetary policy is shifting from a "loosening bias" to a more neutral one, Li told the Global Times Sunday.


Chief economist with China CITIC Bank in Hong Kong Liao Qun noted that the move is only a slight adjustment in market liquidity. "The central bank raised the rate to tighten liquidity as the fund need is declining after the Spring Festival. It is a short-term liquidity-oriented micro-adjustment move and should not be taken as a tightening of PBC's monetary policy Wholesale Indiana Pacers Jerseys ," he told the Global Times Sunday.