IMF’s Lagarde Says Markets Need Clarity on China Currency

“The market is very anxious about China, of course”.

The forecast offered by the International Monetary Fund (IMF) for global economic growth in 2016 is overly optimistic and will have to be reviewed later, Russian Economic Development Minister Alexei Ulyukayev has said.

In her first term, she was deeply involved in the decision to add the Chinese yuan to the IMF’s basket of reserve currencies, a highly symbolic move that was greatly appreciated by Beijing.

China has been the main trigger for the recent market drop as investors take fright over the implications of a decline in economic growth.

Lagarde launched her campaign for her second term on Friday with ringing endorsements from a host of major economies that looked past a court case against her in her native France.

Tidjane Thiam, chief executive of Swiss bank Credit Suisse, says financial markets have had their worst start to a year “ever”. “I think it is massively in our interest that we bring China into the multilateral institutions of the world”.

The Chinese government announced this week that its economy grew by 6.9% in 2015, the slowest rate in a quarter of a century.

However, Lagarde said if the process for integration of refugees is handled well, it will be an upside for the eurozone, boosting growth particularly in Sweden and Germany.

Bank of Japan governor Haruhiko Kuroda, speaking on the same panel at the World Economic Forum in Davos, said he believed China should use capital controls to stabilise its currency while keeping domestic monetary policy loose.

Sharp swings in the yuan have contributed, along with a dramatic fall in the price of oil, to global market volatility since the beginning of 2016.

“Singapore supports Ms Lagarde serving a second term, and I am confident she will continue to lead the International Monetary Fund with conviction and in an inclusive way”, Tharman Shanmugaratnam, chairman of the MAS, said in a statement.

On the flip-side, she told a panel at the World Economic Forum, that a proper strategy on how to control and manage the flow of refugees could be beneficial for the European economy.

Another concern vexing leaders in Davos all week has been Britain’s future in the EU.

British finance minister George Osborne, who also faced questions about Britain potentially voting to leave the European Union, said China had overshadowed proceedings at Davos. But it has shown a willingness to hold it earlier, possibly this summer, if a deal reforming its relationship with the European Union is agreed upon at a summit in February.

Osborne said there is “goodwill” to get a deal.