Beijing cut US dollar deposit rates and lending rates yesterday in an attempt to maintain the stability of the yuan by halting the recent flight out of the domestic currency into US dollars. The People's Bank of China (PBOC) denied suggestions the move was made in advance of a more significant and long-anticipated adjustment in yuan rates. Analysts, however, pointed out that Beijing last reduced interest rates on US dollar accounts in June, prior to a yuan rate cut on July 1. The PBOC yesterday reduced the benchmark one-year rate for US dollar deposits by 62.5 basis points to 4.25 per cent, from 4.875 per cent, compared with 4.77 per cent for yuan deposits. It also lowered the one-year rate for US dollar loans to 6.375 per cent from 7.00 per cent. A PBOC official said the Bank of China - the mainland's foreign exchange bank - was authorised to adjust interest rates on US dollar deposits and loans in accordance with changes in international financial markets. 'This is not related to yuan interest rates, changes in which depend on the performance of the mainland economy,' the official said. Hong Kong analysts said the move indicated an imminent cut in yuan rates, despite PBOC deputy governor Liu Mingkang having tried to dampen the enthusiasm last week by saying that there was 'little room' for any reduction. Beijing has pruned rates five times since April 1996 to bolster economic growth. Intense speculation about lower yuan rates has sent Hong Kong-listed China-related shares - including H shares and red chips - soaring in the past few weeks. Dresdner Kleinwort Benson economist Qu Hongbin said bringing down the US dollar deposit rate would help prevent a diversion of yuan savings to dollar deposits and pave the way for a cut in yuan rates. 'As interest rates on US dollar savings used to be higher than yuan deposits, people were encouraged to switch from yuan deposits to dollar deposits,' he said. 'That's not very helpful when Beijing is concerned about currency stability.' Beijing has been under pressure to devalue the yuan, prompting domestic savers and companies to take measures to hedge against the risk. HSBC Securities Asia China research head Joe Zhang said Beijing could afford to further cut the US dollar deposit rate without causing capital flight, especially after the tightening of foreign exchange controls in recent months. 'Any potential benefits from higher US dollar interest rates will be more than offset by the exchange loss in the black market,' he said. Mr Zhang said he expected the PBOC to lower the yuan's interest rates by about 50 basis points. 'Rate cuts do matter, if done quickly and drastically. They can at least offset the negative effect of rising real interest rates,' he said.