We expect the renminbi to rise by around 15% against the dollar this year (taking it to 6.20 yuan/$) and another 10% in 2009 (to 5.60). The faster pace of appreciation over the last few months has probably been kick-started by inflation concerns and global dollar weakness. Nonetheless, a recent tour of the country has reinforced our long-held view that China is ready to allow further currency gains as part of a package of measures to help rebalance the economy. This sea-change in policy will continue even if, as we expect, Chinese inflation drops back sharply and the dollar stages a partial recovery against other major currencies later in the year.
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