China’s yuan traded near its highest level in 17 years after the Chinese central bank raised interest rates for the third time since the middle of October last year, spurring speculation policy makers will permit more gains to counter inflation.
The benchmark one-year lending rate was raised to 6.06 percent from 5.81 percent beginning yesterday, the People’s Bank of China said on Tuesday. The one-year deposit rate was increased to 3 percent from 2.75 percent.
The monetary authority set the reference rate for yuan trading at 6.5850 per US dollar, the strongest level since a US dollar peg was ended in July 2005.
“Asian central banks outside Japan are more concerned about inflation so it makes sense the currencies are allowed to appreciate to damp imported inflation,” said Robert Minikin, a senior foreign-exchange strategist at Standard Chartered PLC in Hong Kong. “Before too long, we will start seeing the fixing rate to move decisively stronger.”
The yuan closed at 6.5938 per US dollar as of 4:30 p.m. in Shanghai, the same as the closing rate on Feb. 1, according to the China Foreign Exchange Trade System. It rose as much as 0.18 percent to 6.5820 earlier, near the 17-year high of 6.5808 touched on Jan. 24. China’s financial markets were shut in the past week because of the Lunar New Year holiday.
A government report may show on Tuesday that consumer prices gained 5.3 percent from a year earlier last month, compared with 4.6 percent in December, according to the median estimate in a Bloomberg News survey of 15 economists. That would be highest level since July 2008.
The currency is expected to appreciate 4.7 percent in the remainder of this year, according to a median forecast of 25 analysts surveyed by Bloomberg. It climbed 0.6 percent in the week after an interest-rate increase on Dec. 25.
In addition to boosting rates, the central bank has raised the reserve-ratio requirement for major banks seven times since the beginning of last year and introduced stricter policies for lending for second and third-home purchases.
“The authorities may plan to watch for a while after this rate hike because too many tightening measures will cause some slowdown in the economy,” said Liu Dongliang, a Shenzhen-based senior analyst at China Merchants Bank Co, the country’s sixth--largest lender by market value.
Twelve-month non--deliverable forwards were little changed at 6.4285 per US dollar, reflecting bets the currency will rise 2.6 percent, according to data compiled by Bloomberg.