THE central bank raised short-term interest rates Thursday in what economists said was a bid to stave off capital outflows and keep the yuan stable after the Federal Reserve raised U.S. rates 25 basis points overnight.

    The increase in short-term rates was China’s third in as many months and came a day after the end of the annual session of parliament, where leaders warned that tackling risks from a rapid build-up in debt would be a top policy priority this year.

    Hours earlier, the Fed raised its benchmark policy rate, as had been widely expected, and signaled more hikes were on the way as the U.S. economy picks up steam.

    “The higher U.S. rates and tightening of U.S. monetary policy could trigger further capital outflows and have some negative impacts on China’s financial system,” Nomura economist Yang Zhao said. “I think they want to stabilize the currency at this time.”

    Some analysts had expected another such rate rise in China in coming months as authorities look to contain risks from a rapid build-up in debt.

    The People’s Bank of China also strengthened the yuan’s daily mid-point reference rate by the most in about two months Thursday.

    The yuan fell 6.5 percent against the dollar last year in the face of the rising greenback and uncertainty over China’s economy, prompting the government to clamp down on capital outflows to ease a drain on its foreign exchange reserves.

    The yuan has been largely stable this year as the dollar has paused, but China’s government has remained alert as many market watchers expect the dollar will eventually resume its climb.

    The latest move reflected the central bank’s desire to maintain relatively high yuan rates, increasing the cost of shorting the yuan, and easing depreciation pressure, Zhou Hao, emerging markets economist at Commerzbank, said in a note.

    After years of super-loose policy, the central bank has cautiously moved to a modest tightening bias in recent months in a bid to cool explosive growth in debt and discourage speculative activity, though it is treading cautiously to avoid hurting growth.

    The economy is on more solid footing now than early last year, giving policymakers more room, in theory, to tackle financial risks and push through reforms.

    Zhou Xiaochuan, central bank governor, said Friday that China’s corporate debt levels are too high but conceded it will take time to bring them down to more manageable levels.

    In keeping with that cautious tone, the central bank’s increases in short-term rates Thursday were a very modest 10 basis points, or a tenth of a percentage point, the same size as moves in January and February.

    The central bank insisted the moves did not indicate a change in its monetary policy or constitute a hike in its benchmark policy rate.

    Flexibility in rates is favorable for deleveraging, “deflating bubbles” and risk prevention, it said.

    Thursday’s move brought the rate on open market operation reverse repos for seven-day, 14-day and 28-day tenors, bringing them to 2.45 percent, 2.60 percent and 2.75 percent, respectively.

    The rate on medium-term lending facility (MLF) loans was raised to 3.05 percent and 3.20 percent, respectively.

    The MLF is a supplementary policy tool the central bank uses to manage conditions and medium-term interest rates in the banking system and money markets.

    The central bank also said it had lent 113.5 billion yuan (US$16.47 billion) in six-month MLF loans and 189.5 billion yuan in one-year MLF loans to 17 financial institutions Thursday. (SD-Agencies)