Yuan seen to climb from March
By Zhang Fengming |
January 28, 2010, Thursday
|
Print Edition
Print Edition
THE yuan is expected to resume its appreciation as early as March on a pick-up in exports and to send a signal to the market that China will ensure its currency's rise is gradual, economists said.
Economists from Calyon said they expect the rise in the Chinese currency to resume at the end of the first quarter or in the second quarter. Most economists expect the move in the second half.
"We're slightly more aggressive than the consensus on the Chinese yuan," said Sebastien Barbe, head of emerging market research and strategy at Calyon. "We believe an early move is wiser on positive signs of (pick-up in) exports and the need to meet market expectations of a yuan appreciation."
Speculative funds started to flow rapidly into China to ride on the country's strong economic growth in the second half of 2009. The inflow has pumped up liquidity in China, pushing authorities to roll out various tightening measures to siphon excess money.
"There's a risk of a vicious circle - more tightening moves including interest rate hikes, which can further boost returns for the hot funds and further attract the speculative capital," Barbe said.
"We think one way, maybe the only way, to stop the vicious circle is to let the yuan rise as early as possible to lock expectations of a yuan appreciation and send a signal to the market that China will take a gradual appreciation mode," he said. "We believe the central bank and the government will have to make this appreciation move to gain credibility in the management of the currency and capital flows."
The yuan has been flat at 6.83 to the United States dollar since the middle of 2008. Economists termed the situation a "repeg to the dollar" after China broke the yuan's direct link to the greenback and replace it with a basket of currencies in July 2005.
Most economists expect the yuan to rise in the second half of this year on signs of a strong rebound in exports.
Economists from Calyon said they expect the rise in the Chinese currency to resume at the end of the first quarter or in the second quarter. Most economists expect the move in the second half.
"We're slightly more aggressive than the consensus on the Chinese yuan," said Sebastien Barbe, head of emerging market research and strategy at Calyon. "We believe an early move is wiser on positive signs of (pick-up in) exports and the need to meet market expectations of a yuan appreciation."
Speculative funds started to flow rapidly into China to ride on the country's strong economic growth in the second half of 2009. The inflow has pumped up liquidity in China, pushing authorities to roll out various tightening measures to siphon excess money.
"There's a risk of a vicious circle - more tightening moves including interest rate hikes, which can further boost returns for the hot funds and further attract the speculative capital," Barbe said.
"We think one way, maybe the only way, to stop the vicious circle is to let the yuan rise as early as possible to lock expectations of a yuan appreciation and send a signal to the market that China will take a gradual appreciation mode," he said. "We believe the central bank and the government will have to make this appreciation move to gain credibility in the management of the currency and capital flows."
The yuan has been flat at 6.83 to the United States dollar since the middle of 2008. Economists termed the situation a "repeg to the dollar" after China broke the yuan's direct link to the greenback and replace it with a basket of currencies in July 2005.
Most economists expect the yuan to rise in the second half of this year on signs of a strong rebound in exports.
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