The People's Bank of China and the Hong Kong Monetary Authority have followed the US Federal Reserve's decision to raise interest rates. The Fed last night lifted its short-term interest rates by 25 basis points and forecast they will rise more than expected in the coming years. Chen Tong takes a closer look.

The Federal Reserve raised the target range for US funds to 1.5 to 1.75 percent, predicting that inflation will accelerate in the coming months. The Fed predicted the country's core inflation will rise to 2.1 percent next year, slightly above the Fed's target and hover there in 2020. The decision reflected the good performance of the US economy, which the Fed said had been expanding at a moderate rate.

LI LIUYANG, CHIEF ANALYST CHINA MERCHANTS BANK "The US economy is quite well since the year starting 2018. The most watched data by the Fed such like job data, non-farm payroll last month recorded over 300,000 persons increase. That shows very hot job market in the US. And other data inflations the most watched core CPI of the US recorded decade high over the last month. That's the main reason of the rate hike of the Fed."

Following the decision, the US dollar index dropped below 90 points, and the People's Bank of China strengthened the RMB's midpoint fixing by 229 basis points to 6.3167 today. The Chinese central bank also raised its short-term interest rate -- known as the reserve repurchase agreement rate -- by 5 basis points to 2.55 percent. Hong Kong's Monetary Authority also announced its base rate was being adjusted upward by 25 basis points.

DENG ZHIJIAN, INVESTMENT STRATEGIST DBS CHINA "Actually if we don't increase our interest rate, the foreign currency in China will go out. This is very important. Actually, we found the money already goes out from Hong Kong already. This is very dangerous. I think the Hong Kong government will increase the interest rate this year. Maybe in the middle of this year, maybe in the end of this year. One or two times. If they just increase the interest rate one time, I think the percentage will be very large -- 50 basis points or even 75 basis points."

The US Federal Reserve predicted three more rate increases will follow later in the year. The bank's median projection is now for three increases in 2019 and two in 2020. Chen Tong, Shanghai.