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China relieved over IMF's conciliatory tone on Yuan

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China relieved over IMF's conciliatory tone on Yuan
29 Jul 2010, 1154 hrs IST,PTI

BEIJING: China appeared relieved as the International Monetary Fund softened its stand on Yuan revaluation, partially backing Beijing's move to free its exchange rate system in a gradual manner.

Welcoming China's recent decision to return to a managed floating exchange rate system, the 24-member executive board of the International Monetary Fund (IMF) early this week softened its tone by dropping "substantially" when talking about Yuan's undervaluation in an annual report on US Treasury.

The downbeat tone from the IMF's long-held position, which claimed that the Chinese currency is "substantially undervalued", will ease pressure on the appreciation of Chinese currency Yuan, when the world's third-largest economy faces increasing risks of a slowdown, Chinese economists said.

China scrapped the Yuan's 23-month-old peg to the US dollar and pledged to seek greater flexibility in the value of its currency on June 19.

The Yuan has edged up about 0. 7 per cent since and traded today at 6. 7787 per dollar from the 6. 80 a month ago.

"Given the current downside risk that the Chinese economy is facing and the complicated external environment, it is not realistic to expect the Yuan to appreciate significantly," said Zhang Xiaojing, a senior economist at the Chinese Academy of Social Sciences.

Zhang said that he expects the yuan to rise about 3 per cent this year.

"The view showed that the IMF has recognised China's efforts in pursuing greater currency flexibility and generally agreed with the country's approach to let the Yuan appreciate in a gradual manner," state run China Daily quoted Zhang as saying.

The IMF report indicated that it remained optimistic about China's growth outlook, forecasting that the Chinese economy will expand at 10.5 per cent this year.

Hu Xiaolian, vice-governor of the People's Bank of China, the central bank, said the exchange rate will maintain overall stability at a reasonable and balanced level.

But the currency might show "two-way movement" against a single currency depending on market conditions, Hu said.

The IMF report said some of its board members agreed that the exchange rate is undervalued, but other members disagreed with the assessment of the exchange rate, noting that it is based on uncertain forecasts of the current account surplus.

The IMF's conciliatory tone came after the release of the much-awaited US Treasury report earlier this month, when it admitted that China's economic re-balancing policies have led to "a significant decline" in its current account surplus and "China has made progress" in re-balancing its growth, the Daily said.

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