China and Brazil moved to action to control currencies

CHINA sent financial markets into retreat yesterday as it announced a 25 basis point increase to its benchmark interest rate, taking one-year deposit rates to 2.5 per cent and one-year lending rates to 5.56 per cent.

The increase, which takes effect from today, is the first in three years and was seen internally as a warning to Chinese property developers that the government was willing to intervene to restrain rampant house price growth.

But the US has also been calling for China to allow its currency to appreciate, accusing the government of keeping the yuan artificially low and its exports cheap through low interest rates.

The FTSE, along with markets across Europe, reacted badly to the news, falling 30 points to 5,711.

The news came as it emerged that the finance minister of Brazil, Guido Mantega, will skip the G20 summit in South Korea this week to concentrate on measures to curb the strengthening of the country’s currency, the real. The finance ministry has increased the financial transactions tax on foreign investments in fixed income securities from four per cent to six per cent.