Reference rate increases for sixth day in row

SINGAPORE - The reference central parity rate of China's yuan was set higher for the sixth consecutive day on Tuesday while yuan forwards strengthened to a five-week high on speculation the central bank may lift interest rates further and allow faster currency gains to curb inflation.

The People's Bank of China, the central bank, set the reference rate for yuan trading at 6.6252 per dollar on Tuesday, the strongest level since Nov 12. Central bank adviser Li Daokui said more adjustments in borrowing costs and the reserve requirement ratio are "very necessary" in 2011, especially in the first half, the 21st Century Business Herald reported on Tuesday. The People's Bank of China on Saturday lifted the benchmark lending and deposit rates by 25 basis points, the second increase this year. Prudent monetary policy can help manage inflation expectations and prevent asset bubbles, Hu Xiaolian, vice-governor of the central bank, said in a statement on the central bank's website on Monday.

"Higher interest rates may attract more foreign funds and increase yuan appreciation pressure," said Guan Jianying, an analyst in Beijing at China Citic Bank Co. "But it will also depend on the performance of the stock and property markets."