China raised interest rates on US dollar and Hong Kong dollar
deposits yesterday, a move that analysts say is a response to
higher interest rates on the international market.
The , the central bank, raised the upper limit for rates on
one-year US dollar deposits to 3 percent from 2.5 percent. The
ceiling on one-year Hong Kong dollar deposits was increase by 25
basis points to 2.625 percent.
The adjustments become effective today.
This is the fifth time the Chinese central bank has raised
interest rates on key foreign currency deposits this year,
following a similar but smoother upward curve of rates in the
United States. The dollar rate ceiling was a much lower 0.875
percent at the beginning of the year.
"Looking at the whole year, the policy intention is quite
clear," said Zhang Xuechun, a Beijing-based economist with the
Asian Development Bank.
Although China's monetary authorities do not give details about
every policy move, Zhang said yesterday's hike was an effort to
keep pace with the rate-hiking wave by the Federal Reserve in the
United States. It would keep interest differentials from widening
too much.
The Federal Reserve raised its target for its federal funds rate
by 25 basis points earlier this month to 4.25 percent, the 13th
rate hike since June last year.
Zhang said another reason for the Chinese move was to encourage
local residents to deposit more in foreign currencies instead of in
the Chinese currency, the renminbi, to help reduce the upward
pressure on the local currency.
"After the exchange rate reform, interest rate policy must be
more responsive to smoothen exchange rate fluctuations," Zhang
said.
China announced a long-awaited exchange rate reform in July 21,
allowing the renminbi to appreciate by 2 percent and linking the
currency to a basket of foreign currencies instead of the US dollar
alone.
Expectations for further renminbi appreciation remain strong, as
major trading partners keep pressing China for a stronger renminbi,
which they believe is undervalued.
The renminbi has been on an upward trend against the dollar
since the reform, although movements in both directions are
frequently recorded.
(China Daily December 28, 2005)