Wednesday, April 14, 2010

Roubini: China Will Revalue Yuan by 3 to 4% Per Year As Early as May; Fed to Keep Rates Near Zero

We reported last month on Roubini's assessment of the Yuan last month. Today, Nouriel Roubini, said China will allow its currency to appreciate gradually, possibly as early as May.

According to Business Week, Roubini said China will limit the Yuan’s appreciation to a maximum of 3 to 4% per year due to the economic slowdown and rising social tensions.

He says that the move would be enough to allow the Obama administration to claim its efforts were paying off, citing an interview tih Bloomberg Television.

“It’s not at all a game changer, absolutely, but politically that’s the maximum that China can do,”
"it would allow at least the U.S. to signal there is some movement and prevent the U.S. from declaring China as a currency manipulator.”

It was widely reported that China’s official Xinhua News Agency said President Hu replied to the pressure saying the the country wouldn’t yield to “external pressure” in deciding when to adjust the currency. In addition, China released trade figures showing a deficit for March, as we anticipated back 0n March 23.

Mr. Roubini also said the Fed will keep interest rates near zero through early 2011 and may resume the policy of securities purchases, which it claims to have stopped at the end of March, to keep treasuries interest rates low. They have moved higher recently:

(please click to enlarge)

As for economic growth, Roubini said U.S. growth will be closer to 2% toward the end of the year:
“That’s the scenario of an anemic, sub-par, below-trend U- shaped recovery,”

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