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 yesterday.
The measures will lead to a 5 per cent 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, Goldman said in a client note.
Although a 10 per cent revaluation would be needed to bring the currency to fair value, it expects China to revalue the yuan by 2.5 per cent against the US dollar in a 'prudent first move' towards a more flexible exchange rate regime.
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