PBOC Raises Interest Rates on Standing Lending Facility Loans

(Bloomberg) -- China's central bank raised interest rates for standing lending facility loans, aimed mainly at small- and medium-sized financial institutions, it announced Saturday.

The People's Bank of China increased the rate for overnight SLF loans by 0.2 percentage points to 3.3 percent effective from March 16, it said in a statement on its website. The bank raised the rate for 7-day loans to 3.45 percent and the 1-month rate to 3.8 percent.

Once largely reliant on benchmark rates, the PBOC has in recent years used an expanding number of instruments to guide borrowing costs and create an interest-rate corridor. It has increased the frequency of its open-market operations, while officials have been more vocal in signaling policy intentions.

The bank said it conducted about 122 billion yuan ($17.7 billion) of operations for the SLF loans last month and the outstanding facility was about 70 billion yuan at the end of March. The SLF rates play a role in being the ceiling of an interest-rate corridor and will favor stable operation of rates in the currency market, the bank said.

The SLF is similar to the Federal Reserve's discount window and the European Central Bank's Marginal Lending Facility. It was started in 2013 and its maximum maturity has been kept at one month or below for the past two years.

China's central bank sought to increase borrowing costs as a stable economy and factory reflation give it scope to follow the Federal Reserve in tightening policy. The financial institutions have strong incentives to expand credit with the economy steady, inflation accelerating and real-lending costs going down, the central bank said in a statement last month.

To contact Bloomberg News staff for this story: Feifei Shen in Beijing at fshen11@bloomberg.net, Xiaoqing Pi in Beijing at xpi1@bloomberg.net.

To contact the editors responsible for this story: Stanley James at sjames8@bloomberg.net, John McCluskey

With assistance from Feifei Shen, Xiaoqing Pi