IMF chief Christine Lagarde called Friday for more clarity from China on its economic policies as the easing of its exchange rate and plunging stocks sent shockwaves through global markets. "China is embarking on a historic rebalancing of its growth model, and activity is moderating to more sustainable levels," Lagarde said during a visit to Cameroon. "Nonetheless, this rebalancing is a bumpy process whose effects are being felt world-wide - which reinforces the need for more clarity on policies, especially exchange rate policy," she added.
This week the Chinese central bank guided the yuan currency down, setting its daily fix lower for eight sessions, cutting its value by 1.4 percent to its lowest level since March 2011, before a slight reversal on Friday. Although many economists say a gradual lowering of the value of the yuan was to be expected after other major economies weakened their currencies in recent years, the move spooked markets worried about the government''s ability to manage the gradual slowdown of growth in the Chinese economy.
Analysts have said the Chinese central bank needs to better communicate its intentions concerning the yuan. Their handling of the stock market this week also dented confidence in the ability of Chinese officials to manage the economy. New "circuit breakers" brought into force this week meant to decrease trading volatility backfired. Trading was halted on Monday and Thursday as share prices plunged the daily maximum of 7 percent, prompting regulators to rescind the rule.
"As I underlined several times in the past weeks, this transition will certainly be far from easy, and is also feeding into lower demand for commodities," she said. China is a major consumer of commodities, and its slowing growth has hammered prices of resources, with the price of oil falling by over two thirds in the past year and a half.
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