RMB Revaluation - Goldman Sachs

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

BEIJING, Jan. 13, (Xinhuanet) -- 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.

   The measures will lead to a five percent 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, the
investment bank said in a client note.

   Although a 10 percent revaluation would be needed to bring the
currency to fair value, it expects China to revalue the yuan by 2.5
percent against the US dollar in a "prudent first move" towards a more
flexible exchange rate regime.

   Goldman Sachs said that China is then likely to move from a direct
US dollar peg to a crawling basket of trade-weighted currencies.

   It cited a recent mainland media report which said that the
government was considering linking the yuan to a basket of 11
trade-weighted currencies.

   It noted, however, that because many of these were either managed
against or pegged to the dollar, its composition would be 63 percent in
dollars and the remainder split between the euro and yen.

   Goldman Sachs said that the move to a managed basket of currencies
would lead to a one percent appreciation against the basket in six
months and 1.5 percent in 12 months, totaling a five percent rise in
value overall.

   It said that this implies an exchange rate of 8.07, 7.68 and 7.54
yuan to the dollar in three, six and 12 months respectively. The yuan
will be valued at 13.00, 12.38 and 12.60 yen over these periods, it
said. Enditem

(China Daily/Agencies)