China lifts interest rates, set to widen yuan's trading band

China yesterday announced that it would widen the trading band of its currency and raise interest rates, apparently to counter foreign criticism of its exchange rate and rein in its runaway economy.

The moves came ahead of a high-level meeting in Washington next week during which China and the US are expected to discuss major thorns in their trading relationship, of which the currency rate is the biggest.

The interest rate hikes, meanwhile, were widely anticipated as China seeks to cool an economy that grew at a blistering 11.1 percent rate in the first quarter of the year.

The currency trading range will be broadened to 0.5 percent either side of a daily reference rate against the US dollar from the previous 0.3 percent, with effect from Monday.

The yuan closed at 7.668 to the dollar yestyerday, the latest in a series of recent record highs amid upward pressure on the yuan.

The central bank also said beginning today it would raise the benchmark for one-year lending rates by 0.18 percentage point to 6.57 percent and hike the deposit rate by 0.27 percentage point to 3.06 percent.

The move was intended to ensure "reasonable growth" in investments, and keep prices stable, the People's Bank of China said in a statement on its Web site.

The interest rate hike was China's fourth since April last year, signalling its determination to cool a liquidity-driven investment boom and a skyrocketing stock market.

The central bank also said that it would hike the required reserve ratio by 0.5 percentage point to 11.5 percent with effect from June 5.
Source : http://www.taipeitimes.com