China to revalue yuan: Goldman

China to revalue yuan: Goldman

BEIJING: China will make a one-off revaluation of the yuan within the first quarter of the year and move to a trade-weighted basket of currencies to set its exchange rate by the second half, investment house Goldman Sachs said Monday.

The measures will lead to a five percent cumulative appreciation over the next 12 months, it said.

With low interest rate expectations and yawning current account and budget deficits, the US dollar has been hitting fresh lows against the euro and other major currencies on an almost daily basis.

This is pressuring China to address its exchange rate policy, the investment bank said in a client note.

Although a 10 percent revaluation would be needed to bring the currency to fair value, it expects China to revalue the yuan by 2.5 percent against the US dollar in a "prudent first move" towards a more flexible exchange rate regime.

Goldman Sachs said that China is then likely to move from a direct US dollar peg to a crawling basket of trade-weighted currencies.

It cited a recent mainland media report which said that the government was considering linking the yuan to a basket of 11 trade-weighted currencies. -- AFP