China’s inflation rate jumped to a two-year high and the nation’s debt rating was raised by Moody’s Investors Service, boosting pressure for a stronger currency as Group of 20 leaders meet to discuss exchange rates.
Consumer prices rose a more-than-forecast 4.4 per cent from a year earlier, a statistics bureau report showed in Beijing today. Moody’s separately said it boosted China’s rating one step to Aa3, the fourth-highest grade.
The Moody’s move underscores a sustained Chinese rebound from the global crisis that’s pulled in capital from abroad and contributed to inflationary pressures. US Treasury Secretary Timothy F Geithner, attending the G-20 summit starting today in Seoul, said last week that emerging markets should recognise that stronger currencies are one way of adjusting to the influx.
Today’s data “reinforces the case for faster currency appreciation,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong. More interest-rate increases are also “clearly on the way,” he said.
The yuan has strengthened 0.7 per cent against the dollar since November 8, its biggest three-day advance since a currency peg ended in July 2005. Presidents Barack Obama and Hu Jintao will meet today at a summit in Seoul where leaders aim to tackle distortions in global trade and investment.
“The resilient performance of the Chinese economy following the onset of the global financial crisis, and expectations of continued strong growth,” drove the upgrade, Moody’s said.
Currency holdings
The ratings company cited the financial strength of the nation, which holds $2.65 trillion in foreign-exchange reserves, and its ability to manage and contain losses from record lending.
More From This Section
The cost of protecting China’s sovereign debt against default for five years fell three basis points to 53.5 basis points, according to BNP Paribas prices for credit-default swaps.
Industrial output growth cooled to 13.1 per cent in October from a year earlier as the government limited power use by heavy industries to meet year-end energy-efficiency targets, today’s statement showed. Retail sales gained 18.6 per cent and producer price inflation accelerated to 5 per cent.
Today’s data may increase the likelihood of more increases in reserve requirements after the central bank yesterday raised the proportion of deposits that banks must set aside by 0.5 percentage point.