The People's Bank of China increased the interest rate on seven-day reverse repurchase agreements, or reverse repos, by 5 basis points to 2.55% from 2.50%.
The Chinese central bank made the move following the U.S. Federal Reserve's raising of rates by 25 basis points on March 21. The Fed is also forecast to hike rates at least twice more in 2018.
The increase raises the cost of short-term loans to commercial lenders, and is used by the central bank to guide liquidity in the banking system.
The move is "in line with market expectations and a normal response to the Fed's rate hike," the PBOC said in a statement on its website. The hike narrows the gap with market rates, and there is room to further cut that gap to help strengthen the transmission of policy rates, the central bank said.
The PBOC's move on March 22 was the central bank’s first major policy decision under new Governor Yi Gang, who was appointed on March 19.
The central bank also injected 10 billion yuan into the financial system, Bloomberg News reported.
As of March 21, US$1 was equivalent to 6.33 Chinese yuan.