The International Monetary Fund said the Chinese yuan is no longer undervalued but it urged the authorities to make rapid progress towards greater exchange rate flexibility.
“While undervaluation of the Renminbi was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued,” the IMF said Tuesday.
Nonetheless, the still-too-strong external position highlights the need for other policy reforms, it noted.
The Washington-based lender said that greater flexibility, with intervention limited to avoiding disorderly market conditions or excessive volatility, will also be key to prevent the exchange rate from moving away from equilibrium in the future.
Further, the IMF observed that China is transitioning to a new normal, aimed at safer and higher quality growth. The lender expects the economy to expand 6.8 percent this year, compared to the government target of around 7 percent.
“At this juncture, our assessment is that the macro-policy stance is broadly appropriate and consistent with the annual growth and inflation outlook,” it said.
The lender advised China to take advantage of the situation if incoming data suggest that growth is likely to exceed 7 percent. If instead growth looks set to dip below 6.5 percent, then fiscal policy should be eased.
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