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DARIUSZ KOWALCZYK, SENIOR EMERGING MARKET STRATEGIST, CREDIT AGRICOLE, IS INTERVIEWED ON BLOOMBERG TELEVISION
SEPTEMBER 22, 2015
SPEAKERS: DARIUSZ KOWALCZYK, SENIOR EMERGING MARKET STRATEGIST, CREDIT AGRICOLE
MARK BARTON, BLOOMBERG NEWS
ANNA EDWARDS, BLOOMBERG NEWS
[*] MARK BARTON, ANCHOR "COUNTDOWN", BLOOMBERG TELEVISION: Let's talk about those ramifications; Senior Emerging Market Strategist at Credit Agricole joins us now. Dariusz, nice to see you.
DARIUSZ KOWALCZYK, SENIOR EMERGING MARKET STRATEGIST, CREDIT AGRICOLE: Pleasure.
BARTON: We've learned that the Fed pays attention to China. We now know that Janet Yellen has made it clear. What do you think US authorities are going to want to hear from Xi Jinping when he goes, when he talks about what the plan is for the economy? What are the critical factors that they're going to want to learn about?
KOWALCZYK: I think from the perspective of US policy makers the key is to understand what kind of plans China has to boost aggregate demand sufficiently to reach its (INAUDIBLE) percent growth target. And from what we understand policy makers in Beijing have put in place sufficient measures to stabilize growth probably by the fourth quarter of this year through infrastructure investment.
Third quarter will still see a slowdown to probably 6% year on year, but there have been enough stimulus put in place that we expect stabilization later in 2015. And Xi Jinping will be expected to explain these programs to US policy makers to provide them with confidence that this is really going to happen and that therefore they can focus on their domestic economy and start raising rates in the fourth quarter of this year.
ANNA EDWARDS, "COUNTDOWN" ANCHOR, BLOOMBERG TELEVISION: And Dariusz if he is going to be trying to reassure the Americans as to the policy measures that the Chinese are going to introduce, will that include discussion around the currency? Do the Chinese plan to further devalue the currency and if so how is that conversation going to go down in the US?
KOWALCZYK: I'm sorry I lost the audio. Can you please repeat?
EDWARDS: Are the Chinese going to devalue their currency further? And how will that go down during this visit to the US?
KOWALCZYK: It won't go down very well. But Xi Jinping has just given an interview to one of the American financial media saying that there's no need to depreciate the currency much further. And in fact we think that the depreciation, I wouldn't call it devaluation, the depreciation that China has allowed in August by about three percent has been sufficient to achieve their objectives to somewhat help exporters and to make it easier to accept the renminbi into the SDR basket.
And I think that it's pretty clear that they're not planning to boost their growth through exports but rather through domestic demand. Therefore further significant depreciation is not on the cards. And in fact we think that next year will be another year of modest gains in the value of renminbi because foreign Central Banks will be increasingly purchasing the Chinese currency, diversifying their reserves once the renminbi becomes part of the IMF SDR basket.
BARTON: Interesting to see the onshore rate. We'll let you put your earpiece back in Dariusz. The onshore rate and the offshore rate have slightly diverged since they did this. Dariusz any sense of what we're going to learn about the Treasury holding that Beijing has at the moment? If they were to start selling those in significant numbers you could classify this as almost a sort of anti-QE. Any message that's likely to be delivered on that front?
KOWALCZYK: I'm sure US policy makers will be very sensitive to that because they do not want Treasuries to rise too much. And they will come under upward pressure regardless of what China does as the Fed tightens monetary conditions. From what we understand US Treasury holdings account for about 1/3 of China's currency reserves.
So if China needs to intervene to support the renminbi and therefore to get rid of some of the reserves, only part of that will come from liquidation of the Treasury portfolio. And as a result of that, I don't think that China's actions going forward will be a major driver of Treasury yields. They could add to their levels at the margin but they will not boost them in a dramatic way so the US doesn't really have any major reason for concern at this point.
BARTON: Dariusz nice to see you. Thank you very much indeed for your analysis, Dariusz Kowalczyk, Senior Emerging Market Strategist at Credit Agricole.
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2015 CQ Roll Call