China has announced that it will raise interest rates and widen the trading band of its currency, the yuan, in two much anticipated moves ahead of a crucial economic meeting in Washington.
The Chinese central bank moved to cool the country's runaway economy by raising the benchmark for one-year lending rates by 0.18 percentage points and hiking the deposit rate by 0.27 points.
The move, which takes effect on Saturday, was in order to ensure 'reasonable growth' in credit and investments, and keep prices stable, the People's Bank of China said.
It is the fourth time that China has raised interest rates since last April, signalling its determination to cool down an investment boom and a skyrocketing stock market.
China will also widen the trading range of its currency to 0.5% on either side of a daily reference rate against the US dollar from the previous 0.3%, with effect from Monday. The rule change could lead to a faster strengthening of the yuan, given the upward pressure already on the Chinese currency.
China's central bank governor Zhou Xiaochuan said in Shanghai on Thursday that the exchange rate would become 'more and more flexible' to more closely reflect the market.
The exchange rate is the main source of trade friction between China and the US, which accuses the Chinese government of keeping the currency artificially low to give its exporters an unfair advantage. China revalued the currency by 2.1% in July 2005 and since then has allowed it to gain about 5% more.
