China may refrain from additional easing: IMF

Beijing/Washington: China may refrain from stepping up its monetary stimulus or increasing spending because measures now in place are sufficient to support growth, the International Monetary Fund’s (IMF’s) top official in the country said.

“Authorities will probably maintain the status quo after already shifting their monetary stance to a more neutral or accommodating one and may forgo expanding this year’s budget,” Il Houng Lee, the IMF’s senior resident representative in China, said in an interview on Tuesday.

Lee’s comments reflect confidence at the IMF, which last week cut its China growth forecasts three months after releasing updated projections, that the pace of expansion will accelerate in the second half of 2012. Premier Wen Jiabao’s government enacted two interest-rate cuts in a month and accelerated approval of investment plans to stem six quarters of deceleration in the economy.

Lee didn’t rule out another rate cut, saying a drop in the inflation rate could prompt such a move.

The IMF issued an annual review late on 24 July, saying that while China’s economy seems to be undergoing a soft landing, achieving that is a key challenge.

The IMF reiterated its assessment that the yuan is moderately undervalued, which China disputed.

China has overseen a weakening in the yuan this year, which has dropped about 1.4% against the dollar. The yuan fell less than 0.1% against the dollar to 6.3885 on Tuesday.

“The yuan is assessed to be moderately undervalued against a broad basket of currencies,” the IMF staff wrote.

China said the yuan was now close to equilibrium or, at most, slightly undervalued, according to the report.

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