Barclays: China may Escape from "Currency War" with Yuan Close to Equilibrium02-06 15:51 Caijing
There is growing market consensus that the Chinese currency, the yuan, is moving close to an equilibrium level, which has probably largely contributed to the unexpected absence of the country from a looming currency war in a money-printing race, Barclays said in a latest report.
The yuan is expected to rise 2 percent against the dollar in 2013 in the baseline scenario, Barclays said, but adding that possibilities of a cheaper yuan could not be ruled out.
The Chinese currency could be pressured in a short time with weakening yen and emerging Asian currencies, it said. However, given regulators' concern over financial stabilities, a sharp decline is unlikely.
On the upside, though, capital inflows partly triggered by overseas quantitative easing may have put pressure on the yuan to appreciate. Stabilizing Chinese economy, meanwhile, would add to the pressures in the year, according to the British bank.
The yuan moved in a tight range to close at 6.2289 against the dollar on Tuesday morning, guided by the central parity rate set by the People's Bank of China, after it showed signs of peaking in January this year with a historical high of 6.2124. Meanwhile, other Asian currencies including the won and the yen, tumbled in recent trading
The declines in yen on the back of Japan's monetary easing, if sustained, would risk fueling a sharp drop in emerging Asia's currencies, the Barclays warned.
The bigger risk is that if major economies pull back from their quantitative easing after having triggered floods of capital inflows, some emerging economies including China would be hit by the bursting of their bubbles, it said.
China aims to reduce its current account surplus and curtail foreign exchange intervene, while promoting for greater flexibility in the reform of the exchange rate, according to Barclays. The central bank is likely to widen the daily yuan trading band again after it allowed the currency to rise or fall in a single day as much as 1 percent in April 2012, Barclays said.
China's capital and financial account posted a deficit of 117.3 billion U.S. dolalrs last year, the biggest since records began in 1982 while the current account surplus shrank during the same period at 213.8 billion U.S. dollars, government data showed.
The State Administration of Foreign Exchange warned though pressures of staged capital inflows could persist in 2013 if both foreign and domestic environments are benign.
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