China lifts short-term rates to steady yuan

Reuters SHANGHAI (Reuters) — China’s central bank raised short-term interest rates on Thursday in what economists said was a bid to stave off capital outflows and keep the yuan currency stable after the Federal Reserve raised U.S. rates overnight.

The increase in short-term rates was China’s third in as many months, and came a day after the end of the annual session of parliament where leaders warned that tackling risks from a rapid build-up in debt would be a top policy priority this year.

Hours earlier, the Fed raised its benchmark policy rate, as had been widely expected, and signaled more hikes were on the way as the U.S. economy picks up steam.

“The higher U.S. rates and tightening of U.S. monetary policy could trigger further capital outflows and have some negative impact on China’s financial system,” Nomura economist Yang Zhao said. “I think they want to stabilize the currency at this time.”

Some analysts had expected another such rate rise in China in coming months as authorities look to contain risks from a rapid build-up in debt.

The People’s Bank of China (PBOC) also strengthened the yuan’s daily mid-point reference rate by the most in about two months on Thursday.

The yuan fell 6.5 percent against the dollar last year in the face of the rising greenback and uncertainty over China’s economy, prompting the government to clamp down on capital outflows to ease a drain on its foreign exchange reserves.Speech

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