UPDATE 1-In China's interest to revalue yuan-IMF chief economist

Wed Jun 16, 2010 2:05am EDT

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* Says in China's interest to revalue yuan

* Says from global perspective, should happen soon

* Says no doubt global economy recovering

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HELSINKI, June 16 (Reuters) - It is in China's interest to revalue its currency, and from the point of view of the rest of the world it should happen as soon as possible, the International Monetary Fund's top economist was quoted as saying.

"Some sectors in China are overheating and workers are demanding more pay. They (authorities) don't want the inflation risk to grow," IMF Chief Economist Olivier Blanchard said in Finnish business paper Kauppalehti on Wednesday.

"I don't know when and by how much the yuan will be revalued, but I believe it is in their (China's) interests. For the rest of the world it is important that it happens as soon as possible," he said.

"For the world economy to get healthy, we need the U.S. current account deficit to be cut."

With many U.S. lawmakers facing re-election in November and unemployment hovering just below 10 percent, pressure is building on President Barack Obama's administration to push China to break the yuan's nearly two-year-old peg to the dollar.

Although many economists believe yuan appreciation would do little to reduce the overall U.S. trade deficit, a vocal group of lawmakers in Washington says an undervalued currency subsidises Chinese exports at the expense of U.S. firms and jobs.

Blanchard also said it was clear the global economy was on a growth path, and actions taken to halt the spread of the debt crisis from Greece had been effective.

"The real economy is recovering, of that there is no doubt. If anything the recovery has been stronger than we have forecast," he said.

"Because of all the actions taken I am quite hopeful that serious consequences of the Greek crisis on the financial markets can be avoided."

Blanchard said it was important countries put their economies on more sustainable footing, focusing on establishing credible mid-term recovery programmes that could include pension system reforms or raising the retirement age.

"What must be avoided is that all countries try to reassure the marketsby cutting in a crazy way this year. That would be a big mistake," he said.

Blanchard added that it was clear monetary policy could not be enforced solely by inflation targets, and said he stood behind his idea earlier this year that central banks could consider doubling their inflation targets.

"It's clear that just an inflation target is no longer enough in monetary policy. You have to look at asset prices, indebtedness and many other factors," he said.

(Reporting by Brett Young; Editing by Neil Fullick & Kim Coghill)

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