Tuesday, October 26, 2010

You can't buck the market

The FT Alphaville looks at the real appreciation of the Chinese currency from the increase in inflation rather than the nominal appreciation. This is a forgotten channel and one that is exacerbated by the intervention to hold the rate stable. There may be ways of sterilising in a controlled economy but it is likely that the underlying pressure will emerge in some way.

"We’ll quickly note that the Fed’s expected QE2 measures will, if successful in bringing about inflationary pressures, further add to the pressure on China to appreciate."

Alphavile argues that these inflationary pressures will increase the pressure on the Chinese authorities.

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