Chinese Yuan Rises on Outlook for Further Interest Rates Hike

The Chinese yuan strengthened on the speculation that the central bank may increase the interest rates in order to slow the rapidly growing inflation, which may create an asset bubble.

The rapid growth of the Chinese economy attracted investors, boosting the consumer prices to 4.4 percent in October from a year ago. The accelerating inflation troubles the Chinese officials, who may prefer the stronger currency to the risk of the asset bubble. The policy makers are taking steps to curb the foreign inflows into the nation’s economy and to narrow the trade surplus.

The People’s Bank of China raised its benchmark one-year lending rate on October 19th by 25 basis points to 5.56 percent, the first rates hike since 2007. The bank may consider further increase of the rates as the economic growth accelerates.

USD/CNY closed at 6.6365 after opening at 6.6415. EUR/CNY closed at 9.0893 after it opened at 9.0925.

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