High inflation lifts yuan to 3-yr high

ASIAN CURRENCIES ROUND-UP

The yuan rose to the highest since a dollar link ended in July 2005 as a government report showed producer prices climbed at the fastest pace in three years.

China is facing "very big pressures'' to curb rising prices, National Bureau of Statistics director Xie Fuzhan said over the weekend in Beijing, where he was attending the annual National People's Congress meeting. Faster currency gains may help quell inflation by lowering the cost of imports.

The yuan rose to 7.1029 a dollar as of 5:30 pm in Shanghai, compared with a close of 7.1110 on March 7, according to the China Foreign Exchange Trade System. The yuan has risen 2.8 per cent this year after climbing 7 per cent in 2007.

As the legislature lasts until March 15, the yuan will remain little changed, according to Shengkun Yang, a currency analyst at China Citic Bank in Beijing. People's Bank of China vice governor Yi Gang said on March 7 the nation will make its currency more market-based, increasing flexibility.

"Some new policies may come out in summer, such as expanding the yuan's daily trading band against the dollar,'' said Zhou Yajun, a foreign-exchange trader at China Minsheng Bank in Beijing.

Producer prices rose 6.6 per cent from a year earlier after gaining 6.1 per cent in January, the statistics bureau said today. That lagged behind the 6.9 per cent median estimate of 18 economists surveyed by Bloomberg News.

Asian currencies fell, with the Malaysian ringgit having its biggest slide in nine months after the ruling coalition lost its two-thirds majority in parliament.

The ringgit weakened for a second day as the nation's benchmark stock index dropped the most in a decade on concern the opposition will use its extra votes to delay state projects. Malaysia may experience some political uncertainty after the weekend elections, Fitch Ratings said.

"The market is reacting to the election shock,'' said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank in Kuala Lumpur. "The ringgit is set for weakening bias.''

The ringgit fell 1.1 per cent to 3.1990 a dollar as of 4:27 pm in Kuala Lumpur, according to data compiled by Bloomberg. Eight of the 10 most traded currencies in Asia outside Japan declined.

Prime Minister Abdullah Ahmad Badawi's National Front coalition lost the ability to change the constitution unopposed with its reduced majority and relinquished power in five of Malaysia's 12 states in the March 8 election. Opposition parties claimed the government had failed to reduce corruption and poverty in Southeast Asia's third-largest economy.

Still, the "surprising'' election results aren't likely to derail reforms that have been implemented, Franklin Poon, a sovereign credit analyst for Fitch in Hong Kong, said in an interview. He affirmed Fitch's "positive'' outlook on the country's A-rating, the seventh highest investment grade.

Trading on the Kuala Lumpur Stock Exchange was halted for an hour after the key share index fell by the 10 per cent limit.