Yuan revaluation to boost emerging mkt currencies: Lloyds

The global markets are in a tizzy on the back of China's plans to make its exchange rate more flexible. The Chinese central bank indicated over the weekend that there will be no one-off adjustment of the yuan and any movement would be gradual. Chinese authorities had pegged the currency at around 6.83 yuan per dollar since July 2008. The yuan surged to its highest in five years Monday following the news.

However, while the capital markets reacted with enthusiasm to the news from Beijing, it is not at all clear just how much appreciation the PBOC will tolerate. Several analysts have predicted that USD/CNY could reach 6.5000 by year end, but such a move would have to occur against a background of sustained economic growth of 3% or better.

In an interview with CNBC-TV18, Kenneth Broux, Senior Economist, Lloyds gave his perspective on the de-pegging of the Yuan and the way forward for the markets.

Below is a verbatim transcript. Also watch the accompanying video.

Q: How do you read this move and where do you see the yuan headed?

A: I think it’s a very small step, it’s a symbolic step. I think it’s very tactically orchestrated ahead of the G20 meeting which we have the next weekend obviously. I think the market is obviously pricing-in Yuan’s strength or appreciation over 12 months, very small appreciation, 1.5% to 2% against the dollar. Today’s step is a very minor step in the bigger scheme of things. It’s a massive regime shift.