Global View October 2015: Is A Coming Chinese RMB Devaluation Deflationary?

by Michael J. Howell26. October 2015 14:17

We are convinced that China will have to devalue the RMB currency over coming months. This is likely to deliver another psychological shock to markets, with many investors fearing a further round of deflationary pressures. But is a RMB devaluation really deflationary for financial markets or for the World and Asian economies? We argue in this report that a weaker RMB will reinforce cost deflation, but it is more likely to be associated with monetary inflation, not monetary deflation. In other words, the medium-term impact of a Chinese devaluation could be bullish for risk assets and particularly for Asian markets.


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