BEIJING, Nov 17: China's central bank announced on Wednesday it was raising the interest rate on one-year US dollar deposits by 0.3125 percentage points to 0.875 per cent.
The rise will take effect on Thursday, the People's Bank of China said on its website. The rate on six-month dollar deposits will also be increased, up 0.25 percentage points to 0.75 per cent, the statement said.
In addition, it will no longer set two-year rates for deposits of major foreign currencies, including the US dollar, euro, Japanese yen and Hong Kong dollar, allowing commercial banks to set them instead.
The bank gave no reason for the ceiling adjustment although such a move would help give commercial banks more independence, which is one of Beijing's stated goals as it seeks to overhaul its banking system.
An additional aim would be to slow the exchange of dollars for yuan in anticipation of a currency revaluation in the near future. The Chinese currency is pegged in a tight band around 8.28 yuan to the dollar and Beijing has come under increasing pressure by major trading partners to move towards to a more flexible exchange regime.
"Raising (US dollar deposit) interest rates, on the margins, might discourage such activity," said Huang Yiping, an economist at Citi group. US dollar lending rates were not adjusted and neither were interest rates for other currencies.
It is the first time since July 2003 that the central bank has adjusted dollar interest rates and the first time rates were actually raised in the last 12 adjustments. Late last month, the central bank raised yuan interest rates for the first time in nearly a decade as part of moves to help cool the economy. -AFP
