BEIJING, May 30 (Xinhua) -- The rapid appreciation of the RMB is unsustainable, and also not in line with the domestic and international economic and financial situation, a senior Chinese researcher and former central bank official told Xinhua on Sunday.
The current rapid appreciation of the Chinese yuan against the U.S. dollar may have overshot, said Sheng Songcheng, professor of economics and finance with China Europe International Business School and former director of the surveys and statistics department at the People's Bank of China.
The U.S. dollar index has fallen by 2.2 percent in the past month and a half, while the euro has strengthened against the greenback by 2.3 percent and the Japanese yen has weakened by 0.4 percent, but the RMB has appreciated by 2.9 percent, said Sheng.
The U.S. dollar index is less likely to decline further, and the exchange rate of the RMB against the U.S. dollar should also be relatively stable according to market rules. But the RMB exchange rate has hit record highs recently, jumping above 6.4 to the greenback, which indicates that there is an overshoot in the market, Sheng said.
Sheng predicts that the rapid appreciation of the RMB is unsustainable, as the U.S. economy is expected to rebound in the second half of the year, and the U.S. dollar may strengthen accordingly, while the narrowing interest spread between China and the U.S. may weaken the momentum of hot money influx.
Meanwhile, the strengthened RMB cannot offset price hikes for bulk commodities, and it cannot be used as a tool, said Sheng, noting that the RMB exchange rate overshoot is only short-term speculation.
China encourages long-term capital investment, but it should prevent a large inflow of short-term capital, which will push up the RMB exchange rate, weaken the competitiveness of export enterprises and disrupt the independent implementation of China's financial market and monetary policy, said Sheng. Enditem
