China may let yuan rise by 5% to check inflation
China may let its currency appreciate 5% as early as next month to prevent economic growth from stoking inflation. Why currency keeps fluctuating | Global factors
By Bloomberg |
LONDON: China may let its currency appreciate by 5% as early as next month to prevent economic growth from stoking inflation, according to Stephen Jen of BlueGold Capital Management. Policy makers may also raise interest rates this year to cool an economy that expanded by 10.7% in the fourth quarter, the fastest increase in two years, Jen said in an interview this week.
The central bank last week ordered lenders to boost the amount of cash they must put aside as reserves for the second time this year in an attempt to curb growth in loans.
“China is taking steps in the right direction, but the policies so far aren’t adequate,” said Jen, who helps to oversee about $1.5 billion as a managing director at BlueGold in London. “It will require a multi-faceted policy approach to deal with such a big, and sometimes volatile, economy. We expect rate hikes, and we expect a policy change” on the yuan.
China’s “first challenge is inflation expectations,” People’s Bank of China deputy governor Zhu Min said. Goldman Sachs Group chief economist Jim O’Neill said on February 15 a decision by China to revalue the currency as much as 5% “could happen at any time.”
China has resisted allowing the yuan to strengthen as it seeks to support exports, which declined for 13 straight months before rising in December last year. The last time the government revalued the yuan, or renminbi, was on July 21, 2005, when it dropped its currency peg, letting it appreciate 2.1% to 8.11 per dollar. “A stable renminbi is good for both the Chinese economy and the world,” vice commerce minister Zhong Shan said.
The central bank’s decision to raise reserve requirements came after banks extended 19% of the 7.5 trillion yuan of targeted loans for the year in a single month and property prices climbed the most in 21 months.
The central bank last week ordered lenders to boost the amount of cash they must put aside as reserves for the second time this year in an attempt to curb growth in loans.
“China is taking steps in the right direction, but the policies so far aren’t adequate,” said Jen, who helps to oversee about $1.5 billion as a managing director at BlueGold in London. “It will require a multi-faceted policy approach to deal with such a big, and sometimes volatile, economy. We expect rate hikes, and we expect a policy change” on the yuan.
China’s “first challenge is inflation expectations,” People’s Bank of China deputy governor Zhu Min said. Goldman Sachs Group chief economist Jim O’Neill said on February 15 a decision by China to revalue the currency as much as 5% “could happen at any time.”
China has resisted allowing the yuan to strengthen as it seeks to support exports, which declined for 13 straight months before rising in December last year. The last time the government revalued the yuan, or renminbi, was on July 21, 2005, when it dropped its currency peg, letting it appreciate 2.1% to 8.11 per dollar. “A stable renminbi is good for both the Chinese economy and the world,” vice commerce minister Zhong Shan said.
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The central bank’s decision to raise reserve requirements came after banks extended 19% of the 7.5 trillion yuan of targeted loans for the year in a single month and property prices climbed the most in 21 months.
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