NEW YORK - China will limit the yuan's appreciation to 4 percent over the next 12 months because of a "super cautious" outlook on the global economy, said New York University Professor Nouriel Roubini.
The central bank may end a 20-month peg to the dollar as soon as the second quarter, allowing a 2 percent one-step gain, and then let the currency strengthen another 1 percent to 2 percent in 12 months, Roubini said in an interview in New York. The yuan rose 21 percent between July 2005 and July 2008, when the government halted its advance to protect exports.
Roubini's forecast is less aggressive than the median estimate in a Bloomberg survey of 20 analysts for the yuan to rise 5 percent to 6.50 per dollar by March 31, 2011. Chinese central bank Governor Zhou Xiaochuan said on March 6 the nation should be "very cautious" in exiting policies adopted during the global financial crisis, including the exchange-rate link.
NEW YORK UNIVERSITY PROFESSOR
"It will be less than what they did in 2005 when everything was going right," said Roubini, who anticipated the global financial crisis. "They will move by a token amount. The world is much cloudier in every dimension. They are super cautious."
Roubini has become famous for his pessimistic projections. In 2007, he correctly predicted a "hard landing" for the world economy. He said last year that the global economy would shrink through 2009, only for growth to resume in the middle of the year.
Jim O'Neill, the chief Goldman Sachs Group Inc economist who coined the term BRICs for Brazil, Russia, India and China in 2001, said last month that "something is brewing" on the yuan and predicted policymakers will allow a one-time 5 percent gain.
"We must be very cautious about the timing of normalizing the policies, and this includes the renminbi rate policy," Zhou said in Beijing, using another term for the Chinese currency. A global recovery "isn't solid", he said.
China will exit its crisis policies "sooner or later" as it balances growth and inflation concerns, Zhou said.
Regulators ordered banks to set aside more cash as reserves and to curb lending after the economy grew 10.7 percent in the fourth quarter, the most in two years.