Barclays Says Sharp Yuan Devaluation Needed to Shift Psychology
- Says might have to be as large as 25 percent to stem outflows
- FX reserves may fall below `comfort levels' in 6 to 12 months
Chinese one-hundred yuan banknotes are arranged for a photograph.
Photographer: Tomohiro Ohsumi/BloombergA sharp, one-off devaluation of the yuan is among options China’s central bank might consider to stem capital outflows and shift market psychology to appreciation from depreciation, according to Barclays Plc.
The risk of such a move, which Barclays says would need to be in the region of 25 percent to alter perceptions, is rising as China’s foreign-exchange reserves plunge, analysts Ajay Rajadhyaksha and Jian Chang wrote in a report. Based on the current pace of decline in those holdings, there’s a six- to 12-month window before they drop to uncomfortable levels and measures such as capital controls or monetary tightening may also have to be looked at to curb the exodus of money, they said.