hina’s central bank today raised the interest rate on a key liquidity tool, the medium-term lending facility (MLF), as it rolled over maturing loans, triggering a fall in prices of benchmark bond futures.iFeng has CITIC's take on it: 中信：政策利率近六年以来首次上调 四大原因揭秘
The People’s Bank of China (PBOC) pushed up the interest rate for one-year MLFs by 10 basis points, taking it to 3.1 per cent, it said in a statement. It also increased the rate on the six-month tenor by 10 basis points to 2.95 per cent.
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The note says the last increase was in July 2011, also amid a peaking/slowing real estate market. Real estate rage arrived in October.
It says the 1-year MLF is becoming a benchmark rate for policy following loan and deposit rate liberalization.
The four main reasons for the hike are:
1. the economic recovery provides room to hike
2. market rates are rising and the PBoC is playing catch-up (did you think central banks set the interest rate?)
3. deleveraging and control the real estate bubble
4. Federal Reserve hiking, challenge of widening spreads
For the bond market, the policy interest rate for the first time in nearly six years, coupled with taking into account the deleveraging is still on the road, the Fed is also expected to gradually raise interest rates, bond market inevitably into the technical bear market.