SHANGHAI (Reuters) — China’s yuan hit a post-revaluation high, bond yields jumped and stocks tumbled yesterday as markets reacted to the prospect that rising inflation could prompt interest rates to climb faster.A jump in March consumer price inflation could mean weeks of greater volatility in Chinese markets, as they adjust to the idea that they may no longer enjoy the nearly inflation-free growth of the past year.

That is likely to create fresh pressure for the yuan to appreciate, and keep bill and bond yields in an uptrend while steepening the bond curve, analysts said. The stock market may stay on the defensive for some days or weeks. But authorities are expected to keep volatility within reasonable levels, preventing it from hurting the economy, and a stock market crash remains very unlikely, many economists said.

“Worries over an interest rate hike will certainly linger for a while, and volatility in the capital markets is inevitable,” said Wang Haohu at First Capital Securities.

“But the CPI figure was not much worse than the markets had expected. If there are no fresh signs that inflation will keep rising sharply, the markets should be able to stabilise in a few weeks or even sooner.”

The government announced after the stock market closed that March inflation hit 3.3 percent — the first number above 3.0 percent in more than two years — after 2.7 percent in February.

The March number had been rumoured since last week, when the bond market began to react to it. All the markets started reacting strongly on yesterday morning as the rumour spread.

The central bank began tightening policy a year ago to curb investment and absorb billions of dollars of excess funds pouring into China’s markets from its ballooning trade surplus.

But the markets coped comfortably with the tightening — yields edged up only gradually, and the stock market nearly tripled — because inflation stayed low, meaning the central bank focused mostly on soaking up liquidity rather than raising interest rates.

What worried the markets most on yesterday was the idea that this pattern might change. The last rate hike in March left the benchmark one-year deposit rate at 2.79 percent. That means real deposit rates are negative, threatening a further flood of money into China’s frothy stock and real estate markets.