The Chinese yuan is 'fairly valued' despite recent weakening, says IMF mission chief

  • The Chinese yuan is still "fairly valued" despite recent declines against the dollar recently, said an International Monetary Fund official.
  • The divergence in U.S. and China monetary conditions contribute to the recent slide in the Chinese yuan.
  • While the IMF praised China's progress on reducing financial sector risks and in further opening its economy, it said credit growth was still unsustainably high as some aspects of the country's rebalancing had slowed.

The Chinese yuan is still "fairly valued" despite recent declines against the dollar, said an International Monetary Fund (IMF) official on Friday.

"The moves haven't been that big by the standards of other emerging markets. It only takes the currency back to where it was at the beginning of the year and on the average of last year," said James Daniel, the IMF mission chief for China.

China's currency has been sliding since mid-June amid an escalating trade war between the U.S. and China, after bumping around at higher levels from February through May. On Friday, USD/CNY was trading around 6.8.

The recent moves in the Chinese yuan are what is to be expected from a flexible exchange rate, Daniel told CNBC's "The Rundown."

A Chinese bank staff member counting stacks of 100-yuan notes at a bank in Huaibei, east China's Anhui province.
AFP | Getty Images
A Chinese bank staff member counting stacks of 100-yuan notes at a bank in Huaibei, east China's Anhui province.

"Domestically in China, there's a bit of a slowdown, somewhat of a monetary easing ... [but] the American economy is doing well and there is a tightening bias in America so you'd expect to see this divergent monetary condition reflected in a somewhat weaker exchange rate in China," Daniel explains.

Daniel's comments came on the back of the IMF's annual review of the Chinese economy.

China's economy continues to perform strongly, the IMF said, with growth expected at 6.6 percent this year — slightly slower than last year's 6.9 percent.

The growth estimate was unchanged from the IMF's last forecast made in May. It had raised its estimate for China's 2018 growth in January after the economy unexpectedly accelerated last year.

While the IMF praised China's progress on reducing financial sector risks and in further opening its economy, it said credit growth was still unsustainably high as some aspects of the country's rebalancing had slowed.

"China is at an historic juncture. After decades of high-speed growth, the authorities are now focusing on high-quality growth," the report said.

The IMF added that China's headline inflation is expected to rise gradually to around 2.5 percent, while producer price inflation would moderate.

The U.S. is also closely watching the currency of its top trading partner.

On Thursday, Treasury Secretary Steven Mnuchin told CNBC he's "closely monitoring" the weakening in the Chinese currency.

— CNBC's Berkeley Lovelace Jr. and Reuters contributed to this report.