Yuan Slips as China Raises Interest Rates and May Do So Again

The Chinese yuan slipped today as the central bank raised its interest rates in an attempt to curb China’s significant inflation and to prevent the asset-bubble. China’s economic growth makes traders expect another rates hike in the future.

The People’s Bank of China raised its key one-year lending and deposit rates by 25 basis points on the Christmas Day, the second increase since mid-October. The benchmark lending rate advanced to 5.81 percent, while it was 7.47 percent before the cuts from late 2008, caused by the global economic crisis. It may rise to 6.56 percent by the end of 2011. The deposit rate went up to 2.75 percent.

China’s central bank is expected to continue the interest rates hikes in the future, while the central banks of the US, the European Union and Japan will likely keep their rates on hold for some time. It’s not surprising as China’s economy may grow 9.6 percent next year, while the US economy will grow by 2.3 percent and the EU economy will expand 1.5 percent. China’s inflation was at 5.1 percent annual pace in November.

USD/CNY went up from 6.6280 to 6.6323 as of 17:32 GMT, following the advance to the intraday high of 6.6500. EUR/CNY advanced from 8.6927 to 8.7179.

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