Yawn

The People's Bank of China may at last be substantially revaluing its currency - even if officially it has told no-one.

Dramatic changes in recent months and especially the last week in the crawling dollar peg the central bank sets for the renminbi (RMB) are leading to big cumulative shifts in its rate.

The changes this month alone would see a 15pc-16pc hike on an annualised basis, and markets are starting to estimate that the gain may be as much as 9pc over the year.

That would bring the total change since the government abandoned the fixed peg in July 2005 to nearly 20pc.

The move may have striking repercussions for a global economy in which China's currency policies have often come under fire for creating liquidity imbalances, but which is now also fighting the threat of higher prices.

Most analysts say fear of domestic inflation is the prime reason for a policy change.

The consumer prices index rose 6.9pc in November, up from 6.5pc, despite government hopes that inflation had peaked. It blamed big rises in food prices, but there are also signs that inflation is creeping into the wider economy.

Growth last year hit an estimated 11.5pc, while largely because of its huge and fast-rising trade surplus, China's foreign exchange reserves rose to just shy of $1,500bn (£760bn).

"Our take was always that the RMB was the last trick in the box in terms of balancing the trade surplus," said Stephen Green, head of research in China for Standard Chartered, which last week raised its predicted rise for the RMB over the year to 9pc.

It sees the trend continuing into 2009, with the RMB ending next year at a rate of 6.17 to the dollar, compared to 7.27 now and 8.26 when the fixed peg was dropped.

"There were two triggers - domestic inflation and (the threat of) US protectionism," Mr Green said. "In the last three months inflation has moved to the top."

The government attempts to sterilise its attempts to buck the exchanges by selling renminbi bills. But with RMB rises to date having seemingly little effect on the surplus, this is a limited solution.

It sold 5bn RMB in short-term bills yesterday, but has more than a trillion RMB's worth (£69.7bn) due to mature over the course of this month alone.

Some analysts believe the government will be forced to turn to shock therapy, announcing a major one-off revaluation. It is possible the faster rise is having a perverse effect, attracting hot money leading to greater investment, exports and surpluses.

But much will depend on the American and European economies.

Despite revaluation efforts so far, the pace in the fall of the dollar on the international markets has been such that the renminbi has continued to decline against the euro, by 9pc last year.

If the dollar halts or even reverses its slide, the People's Bank could decide to slow the revaluation, or look at the wider basket of currencies - while still making industrial strength and employment stability its number one priority.

Song Guoqing, professor at the China Centre for Economic Research at Beijing University, said the government regarded a 5pc revaluation against a basket of currencies as "very high" - in other words, that it would have a destabilising effect on exporters.

"Two to three pc appreciation of renminbi basically has little influence on China's economy," he said. "If it were more than 10pc, then the effect would be clearly visible."