Yuan, Rupee Rise at Record Pace as China, India Fight Inflation

By allowing their currencies to strengthen, Asian countries are attempting to reduce the cost of importing coal, iron ore and wheat, ingredients essential to their booming economies. The risk is that the goods they produce may become too expensive. In China, consumer prices rose 6.5 percent in August, the most since 1997. Singapore consumer prices hit a 12-year high in August, and India's inflation rate this year reached the highest since 2005.

Asian central banks are finding that raising interest rates and selling debt aren't enough to soak up the cash that generates higher wages and fuels inflation. The People's Bank of China increased rates five times this year, while the Reserve Bank of India has boosted its target seven times in two years.

Currencies in Asia are rising so fast that manufacturers in Asia are demanding reassurances from policy makers that their exports will remain competitive. India's export growth slowed to an average 14.4 percent in the first eight months of this year, compared with 22.4 percent in the same period in 2006.

Asian central banks that want faster appreciation in their currencies are getting some help from international investors, who are pumping money back into emerging markets after pulling away in July and August. Stock market indexes in India, China, the Philippines, Indonesia and Singapore rose to records in the last month.

-Subir