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Foreign Investment: Chinese currency will keep rising

Posted April 17, 2008

“Parabolic rises in food and energy prices have China’s inflation rate at a 12-year high. This underlines the currency’s importance for Beijing in curbing inflation and discouraging marginally priced exports.” — Sally Limantour

by Sally Limantour

Baltimore – (TFN): China’s currency, the renminbi (RMB), has risen over 4% this year. This is the fastest pace of appreciation since Beijing dropped its dollar peg in mid-2005.

Higher inflation is one of the reasons for the RMB rally. Parabolic rises in food prices and energy costs have China’s inflation rate at a 12-year high.

This underlines the currency’s importance for Beijing in curbing inflation and discouraging marginally priced exports.

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A stronger Chinese currency will help reduce the cost of importing food and energy, and also help alleviate the country’s swelling trade surplus. This has been a political hotbed in relations with China’s big trading partners.

Like the Chinese economy, we can expect China’s currency to continue rising in the months ahead. View a chart of the Chinese renminbi and find more from Sally Limantour.

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