China is ‘not fall­ing off a cliff’

The Pak Banker - - COMPANIES/BOSS -

China is still con­tribut­ing to global growth as it ad­justs its cur­rency pol­icy and shifts to con­sumer-led growth, ac­cord­ing to In­dia's cen­tral bank gov­er­nor. "My sense is there is un­der­ly­ing growth in China," Raghu­ram Ra­jan said in an in­ter­view at the World Eco­nomic Fo­rum in Davos, Switzer­land. "It's not fall­ing off a cliff." Ques­tions re­main about what China's growth im­plies for com­mod­ity mar­kets and how it in­ter­plays with lev­er­age, Ra­jan said. Chi­nese au­thor­i­ties should be taken at their word when they say aren't de­lib­er­ately de­pre­ci­at­ing the cur­rency, he said.

A fresh sell-off in the yuan and Chi­nese eq­ui­ties this year sent shock­waves through com­modi­ties mar­kets and helped wipe more than $6 tril­lion off stocks world­wide on con­cern about the global econ­omy. "The Chi­nese move to a bas­ket is un­der­stand­able be­cause the dol­lar is strength­en­ing, but the yen and the euro are weak­en­ing, so clearly some of the ac­tions that have been taken to weaken cur­ren­cies do have ef­fects else­where," Ra­jan said. "One shouldn't see the Chi­nese move, to move to­wards a bas­ket, as be­ing un­re­lated to what's hap­pened else­where."

The In­ter­na­tional Mon­e­tary Fund this week low­ered its global ex­pan­sion fore­cast to 3.4 per­cent from 3.6 per­cent in Oc­to­ber. It warned the out­look could worsen if the emerg­ing-mar­ket slow­down, China's shift to con­sump­tion­led growth, and the U.S. Fed­eral Re­serve's exit from ul­tra-low in­ter­est rates aren't man­aged.

In­dia's ru­pee fell to­ward its record low this month as over­seas in­vestors sold more than a $1 bil­lion of In­dian stocks. Ra­jan, who has re­peat­edly cau­tioned against the "beg­gar-thyneigh­bor" pol­icy of com­pet­i­tive cur­rency de­val­u­a­tion, has been us­ing the coun­try's for­eign-ex­change re­serves to help slow the slump. "We don't have a tar­get in mind," Ra­jan said. "What we do want to en­sure is we don't get ex­cess volatil­ity." Plung­ing global oil prices are help­ing off­set in­fla­tion risks from a de­pre­ci­at­ing ru­pee. Even so, pol­icy mak­ers weigh many fac­tors when de­cid­ing on bor­row­ing costs, Ra­jan said. "The rate de­ci­sion is based on some­thing more com­pli­cated than the price of oil," Ra­jan said. "It is an in­put. It goes in the di­rec­tion of be­ing more ac­co­moda­tive but there are whole lot of other things that we look at." Ra­jan's due to re­view pol­icy on Feb. 2. He cut rates by 1.25 per­cent­age point in 2015, and econ­o­mists are pre­dict­ing just one more re­duc­tion this year as in­fla­tion threat­ens to stay above his 5 per­cent goal

for March 2017.

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