The yuan strengthened on Monday after a central bank researcher said there was room to raise interest rates in the short term, easing expectations of capital outflow from the mainland.
“There is room for an increase in interest rates in the short term as industrial product prices and corporate profitability have improved since last year,” the People’s Bank of China’s (PBOC) research bureau deputy head Ji Min told China Daily over the weekend.
Official rhetoric has been turning relatively hawkish in recent weeks as reports showed central bank researchers had agreed higher interest rates would help squeeze any asset bubble and curb debt expansion.
Other PBOC officials believe the potential interest rate hikes and the promotion of production capacity will further improve returns on investments by industrial enterprises.
Similarly, Stephen Innes, APAC head of trading at Oanda, forecasts the yuan to reach 6.30 this year because of prolonged US dollar weakness and given the “PBOC appeared unconcerned with rising rates and more concerned with attracting capital inflows”.