WASHINGTON — The International Monetary Fund (IMF) said in Washington on July 27 that the Chinese currency Renminbi (RMB) was broadly in line with fundamentals and desirable policies.
In its 2016 External Sector Report, the IMF said that developments through June this year don’t suggest a change in this assessment.
Through June 2016, the RMB has depreciated by 6 percent from its 2015 average, while in 2015, the average RMB real effective exchange rate appreciated by about 10 percent against the 2014 average.
However, the IMF said that the assessment is facing uncertainties, such as diverging market views on the RMB outlook and shifts in portfolio allocation preferences.
Due to weak real import growth, China’s current account surplus to gross domestic product ratio in 2015 was higher than 2014.
“China’s current account position is stronger than warranted,” said Luis Cubeddu, deputy division chief of the Regional Studies Division of the IMF’s Western Hemisphere Department, at a teleconference.
He added that the surplus is expected to decline, with exchange rate policy and structural reforms playing a role.
As China’s economy shifts further toward private consumption and away from external demand, the trade surplus is expected to narrow and the services deficit to rise with healthy outbound tourism over the medium term, the IMF said.
It is expected that pressure on China’s foreign exchange reserves will remain manageable, as the volume of capital outflows is expected to be broadly steady with residents’ portfolio rebalancing toward foreign assets due to the gradual opening of the capital account.
According to the report, the global external imbalances have widened again in 2015 after narrowing in the aftermath of the global financial crisis.
Three main factors contributed to the widening, including the diverging monetary policies adopted by advanced economies, the sharp decline in commodities prices, and the tighter external financing conditions in emerging markets.
“Uneven recoveries and expectations about monetary policies led to marked exchange rate movements across systemic currencies, supporting the widening of their external imbalances,” the IMF said.
But the marked exchange rate movements won’t necessarily call for coordinated currency policies among major economies, said Cubeddu.
The IMF called on countries to reduce reliance on monetary policy and focus on fiscal and structural policies to address the excess imbalances.