Fairly risky

1 June 2015 By Andy Mukherjee

The International Monetary Fund says the currency is no longer undervalued. That could be worrying, if true. The yuan was a third below its fair value in 2005. The gap disappearing means the People’s Republic has lost too much competitiveness, too soon. Deflation is a real risk.

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China’s yuan is no longer undervalued, International Monetary Fund said on May 26. While undervaluation of the renminbi “was a major factor” behind the country’s large current account surplus in the past, “substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued,” the IMF said.

The IMF expects China’s economy to expand 6.8 percent this year, compared with 7.4 percent growth in 2014. Growth next year may slow further to 6.25 percent in 2016, it said in a report.

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