Tags: Ahya | China | Devalue | renminbi

Morgan Stanley's Ahya: China Unlikely to Devalue its Currency

By    |   Saturday, 29 November 2014 11:57 AM

Until the past few years, China put great energy into keeping its currency undervalued in an effort to boost exports and maintain control of foreign investment in the country.

But after several years of letting the renminbi appreciate, China is unlikely to shift back to a devaluation policy, says Morgan Stanley economist Chetan Ahya.

Some experts have speculated Chinese authorities would do so to fight the economy's slowdown.

China's GDP grew 7.3 percent year-on-year in the third quarter, the lowest rate in 5½ years.

"We do not expect China to use the renminbi as a policy tool to support growth," Ahya writes in Barron's. "The currency is likely to remain stable in the years ahead with a mild appreciation bias, we believe."

A weaker currency helps an economy by boosting exports.

"We see challenges for policymakers in engineering a sustained depreciation," Ahya says. "Real [interest] rate differentials are supportive of the renminbi, and, as per our forecasts, real rate differentials are unlikely to narrow significantly in the coming 12-18 months."

Meanwhile, much of the world appears to be engaged in a currency war. The dollar hit a seven-year high against the yen and a two-year high against the euro earlier this month.

Komal Sri-Kumar, president of macroeconomic consulting firm Sri-Kumar Global Strategies, warns of the risks.

"Unfortunately, playing with exchange rates is a zero-sum game," he writes in the Financial Times. "Any benefit to the depreciating country would be fleeting as trading nations fight back with similar measures."

Instead, countries should "implement structural changes that would expand world trade," Sri-Kumar says.

Related Stories:

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
Finance
Until the past few years, China put great energy into keeping its currency undervalued in an effort to boost exports and maintain control of foreign investment in the country.
Ahya, China, Devalue, renminbi
282
2014-57-29
Saturday, 29 November 2014 11:57 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
America's News Page
© Newsmax Media, Inc.
All Rights Reserved