Goldman sees more gains in China's yuan

Hong Kong

THE yuan's rally has more room to run as China's economic recovery picks up, according to Goldman Sachs Group Inc.

The currency will advance about 1.5 per cent to 6.6 a dollar in the next 12 months, said MK Tang, chief China economist at Goldman Sachs in Hong Kong. That's slightly more bullish than the brokerage's 6.7 forecast in January.

"The economy will show solid signs of recovery," Mr Tang said, citing stimulus measures rolled out since last year and a pick-up in infrastructure investments as reasons economic expansion will get a boost in the coming months.

Early indicators have flashed the first signs of an economic recovery after months of slowdown, and China's credit growth surged to a record in January. The People's Bank of China cut lenders' reserve requirement five times since the start of 2018 in a bid to boost growth.

Goldman's view is at odds with analysts at NatWest Markets and Commerzbank AG, who say the yuan is likely to face depreciation pressure as fundamentals remain weak and current account surplus shrinks.

China will keep the yuan basically stable at reasonable levels and will increase the flexibility of the exchange rate, the nation's top economic planner said in report released on Tuesday during the National People's Congress in Beijing.

The yuan has surged 2.7 per cent in 2019 as the best-performing currency in Asia, after tumbling more than 5 per cent last year.

Here's what else Mr Tang had to say on the yuan and the economy: