In a reaction to the fear that China’s central bank would increase measures to bring down inflation, China’s stocks fell, causing the largest drop in three months. However, at the same time this drop was happening, the Yuan reached a 17-year high.
At 3:00 in the afternoon local time, the Shanghai Composite Index had lost 0.5%, but the Yuan traded at the largest premium in five months, which shows that the central bank may be allowing quicker currency gains in an effort to help calm down the ever-increasing inflation rates. Four increases in interest rates have yet to curb prices, and the consumer index price rose 5.4% in March alone.
Li Jun, a strategist in Shanghai at the Central China Securities Co. said, “The investors are still expecting to see more tightening measures as inflation remains at a high level. Faster Yuan appreciation would become part of the government’s efforts to curb inflation after the central bank gets close to a ceiling for reserve requirement ratios and interest-rate increases”.
However, because the prices of imported raw materials and commodities begin to rise, companies in China will have to deal with these inflation pressures in regards to their operations and the production of their products.