Tuesday, February 16, 2010

Goldman Sachs Chief Global Analyst: Chinese Currency to Appreciate Very Soon

Appreciation of the Chinese currency could occur soon, says Jim O'Neill, head of global economic research at Goldman Sachs, in interview to AE (in Portuguese).

"I personally believe that we are nearing the time when they will consider moving the currency" said the executive, who coined the term BRIC in 2001 to designate the group of large emerging Brazil, Russia, India and China.

We track foreign currency ETFs live here. In particular, CNY, CYB, track the Yuan and Renminbi. here is their comparison chart.

O'Neill says that the Chinese do not want to appear to the world that they are following what has been said to them, with regards to the issue of managing their currency, especially with regards to the United States, since the two countries have a delicate relationship in this arena. The executive estimates that the management of monetary policy has been complicated by persistent speculation related to a revaluation of the currency. However, in light of concerns of overheating and inflation in the country, O'Neill believes the interests of domestic and international policy in the country are closer than they had been a long time:

"I think they are considering allowing a renewed appreciation to leave speculation behind and can concentrate on the underlying priorities. These priorities, he exemplifies, are to strengthen domestic consumption, the cost of part of exporting component of the economy, and improve efficiency in energy use.

O'Neill sees the increase in reserve requirements implemented on Friday, the second since the beginning of the year, as a direct consequence of the strength of the Chinese economy. Economic growth was from the beginning of the year, and is still around 12%, a rate "consistent with an economy overheating," he pondered. He estimates that the equilibrium level of Chinese growth is between 8% to 10%. In the evaluation of the executive, the Chinese are satisfied with stimuli that they successfully implemented this same time last year and do not want to slow the economy dramatically. "They want to just stop being over-heated.

No asset bubble

The economist does not believe, however, that there is an asset bubble in the country. For example, he points out, the government is adopting a series of measures to prevent price increase in the local housing market. The Economist points out that raising interest rates for loans of one year, which is considered the reference rate of the Chinese monetary policy, is meaningless if there is a movement in the currency.

"I believe that will not raise rates until they are really ready to accept that the currency needs to appreciate what can happen at any time. I would not be surprised if it happens tomorrow or the next few weeks, " he added.

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1 comment:

Deming said...

Volume on Chinese Yuan ETF CYB today (2/16/2010) was 1,510,000 shares. Average monthly volumve is @ 233,000 shares.

Today's volume is a 52 week high and appears to be the all time volume high for the ETF.


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