Andy Seaman, partner and portfolio manager at Stratton Street, says that a policy of monetary tightening in China points to an appreciation of the RMB against other currencies.
Zhou Xiaochuan, the governor of the Peoples’ Bank of China announced on Wednesday a major divergence in global monetary policy at the major news conference of the year. While the rest of the world is easing still, China is going to start tightening.
The move came after a slight uptick in inflation to 3.2% in February, a ten month high, although Chinese New Year may have affected this month. Last year inflation was 2.6%. He stated that “in the past some of us thought it was no big deal if inflation was a little bit high, growth will be a little faster and then we can control inflation afterwards. But international experience and our own experience here show that this thinking might not be correct. It requires careful attention to maintain low inflation.”