China has raised its main interest rate for the first time in nearly a decade as part of efforts to cool off its overheating economy.

The People's Bank of China hiked up benchmark rates on one year yuan loans to 5.58 percent from 5.31 percent and the rate on one-year deposits to 2.25 percent from 1.98 percent.

Financial analysts say the move would have significant ramifications on the world economy as well as major exporting countries, including South Korea.

The analysts say that the Chinese move to bring its torrid economy under control would cut into the nation's exports in the short term.

In a related move that pushes forward the long-standing goal of interest rate liberalization, the People's Bank of China also scrapped upper limits on yuan lending rates. As a result, banks now, "in principle," will be free to charge as much as they want for yuan loans.

Shortly after China’s surprise announcement, the U.S. dollar slipped against other major currencies as the market struggled to work out the implications of China's raise of its key interest rate.

China's economy, the 7th largest in the world, has become a major factor on global markets, sucking in imports from the rest of the world and helping to drive up prices of oil and other global commodities.