BEIJING/SHANGHAI - China's central bank on Thursday nudged up money market rates as authorities sought to defuse financial risks without imperilling the economy, a balancing act that it has managed successfully so far this year as activity remained broadly steady.
The move by the People's Bank of China (PBOC) is widely seen as a backdoor approach that avoids the need to raise benchmark policy rates, and came hours after an anticipated U.S. Federal Reverse rate hike.
It signalled that Beijing will keep policy tighter next year as a flurry of data earlier in the day, including industrial output, investment and property market, backed evidence of a moderation in growth in the world's second-biggest economy.
"This (rate move) shows two things to us. First, Fed policy is still one of the parameters to influencing PBoC’s decision making," said Tommy Xie, economist at OCBC, in a note to clients.
"Second, China shows no signs of fatigue in financial de-leveraging."
The PBOC increased rates on reverse repurchase agreements, or reverse repos, used for open market operations by 5 basis points for the 7-day and 28-day tenors. It also said in a statement it increased rates on its one-year medium-term lending facility (MLF) also by 5 basis points.
The symbolic move was the first time the Chinese central bank has raised rates since March, but market interest rates have risen on their own during the interim as the government pursues a range of policies to lower leverage and debt in the economy.
The impact of these steps were seen in Thursday's National Bureau of Statistics data releases, with industrial output up 6.1 percent in November year-on-year, versus forecasts for an increase of 6.0 percent, but below the 6.2 percent gain in October.
China's fixed-asset investment growth also slowed to 7.2 percent in the January-November period, in line with expectations, though lagging the 7.3 percent expansion in the January-October period.
Along with the rest of trade-dependent Asia, China's economy gained a lift this year from an exports boom that has spurred a synchronized uptick in global growth.
The Asian economic powerhouse grew at a surprisingly strong pace of nearly 6.9 percent through the first nine months of this year, buoyed largely by a recovery in its manufacturing sector thanks to a government-led infrastructure spending spree, a resilient property market and unexpected strength in exports.
Growth has been cooling in the past few months, however, as higher borrowing costs combined with tighter rules on polluting factories crimped production and weighed on overall economic activity.
As northern China officially entered the heating season in mid-November, the government has also stepped up efforts to address winter smog, ordering many steel mills, smelters and factories to curtail or halt production to rein in pollution.
“Economic operations are generally steady and economic growth is more resilient, and people don’t worry too much about next year’s growth, so this provides a good time window for stepping up structural reforms, including pollution controls,” statistics bureau spokesman Mao Shengyong told reporters following a regular press conference on Thursday.
The construction boom has driven up demand for everything from cement to steel and lifted prices of commodities. The war on pollution has cut both ways on prices of commodities - with fears of supply shortages due to production cuts lifting iron ore prices, for instance, while concerns of a demand-slowdown have dented other resources.
A red-hot property market has been a major growth driver for China's economy this year, but it has been expected to slow as more cities unveil measures to curb soaring home prices and banks raise mortgage rates in response to tighter monetary policy.
New construction starts measured by floor area accelerated 6.9 percent in January-November, though property investment slowed to 7.5 percent on-year in that period, from an 7.8 percent gain in the first 10 months of 2017.
Thursday's data also showed fixed-asset investment by state firms rose 11.0 percent in January-November, quickening from 10.9 percent in the first ten months. Growth of private investment slowed to 5.7 percent from 5.8 percent in January-October.
Retail sales gained 10.2 percent in November on-year, meeting expectations, but slightly higher than the prior month, likely boosted by China's annual 24-hour shopping binge on Nov. 11, known as Singles' Day.
Sales on that day hit $38.25 billion, exceeding combined revenue for Black Friday and Cyber Monday in the United States.
Taken together, the data suggest economic growth is still expected to easily meet or beat the government's full-year target of around 6.5 percent and signalled that China has sufficient headroom to keep policy tight over the next year.
"The adjustment of China's money market rate hike will continue to remind investors that financial de-leverage is a long haul project for China," OCBC's Xie said.