By Brian Love
PARIS, Nov 19 (Reuters) - Beijing will have to let the yuan appreciate at some stage but absence of inflationary pressures means it has little economic reason to rush, OECD chief economist Jorgen Elmeskov told Reuters in an interview.
China faces international pressure to let its currency rise on the grounds that an undervalued yuan is fuelling imbalances between it and other major economies but showed no public sign of budging during this week's visit by U.S. President Barack Obama.
"Right now, you can say Chinese inflation is extremely low and there's perhaps not an urgent need for them to tighten monetary conditions," the OECD's Elmeskov said.
In the absence of such a yuan move, the strength of the euro was the natural consequence of dollar weakness but recovering world trade will help the euro zone if euro strength makes it harder for its exporters to compete.
"It is clear that the fall in the dollar has a flipside in the strength of the euro, which obviously is not something that helps export-driven recovery in Europe," said Elmeskov.
"Fortunately, we do see relatively buoyant market growth. We basically see relatively good world trade growth. So even if Europe is facing competitive pressures because of the exchange rate, there's still going to be some export growth," he said.
Asked about the euro's recent rise to around $1.50 versus the dollar, Elmeskov said:
"It's not a drama at the current level but the concern is what would happen if it went much beyond."
Indeed, dollar weakness was partly caused by the welcome fact that global financial markets had stabilised, diminishing the traditional "safe haven" appeal of U.S. assets in times of crisis.
"Part of the fall we've seen in the dollar recently is there is no longer the 'safe haven' effect, because financial markets have normalised to a much greater extent, and that means people are willing to search out a bit more risk," he said.
OECD simulations suggested a 10 percent dollar fall trims GDP by about 0.3 percentage points over a year, said Elmeskov.
The euro has gained 18 percent versus the dollar in the past year, is almost six percent up against sterling and almost nine percent versus the yen. The dollar has shed about 14 percent in the past year in trade-weighted terms, according to one trade-weighted measure.
The OECD, which released new economic forecasts on Thursday, predicts world trade growth of 6.0 percent in 2010 and 7.7 percent in 2011 after a 12.5 percent plunge in 2009.
"If anything we might be concerned we could be lowballing it a bit," Elmeskov said, noting the possibility of a greater lift from Asia than built into the calculations of the Organisation for Economic Co-operation and Development, whose members are 30 mostly industrialised countries and not the likes of China.
In the report on its new forecasts, the OECD said "the risk of disorderly exchange rate adjustment cannot be excluded" due to the fact that international economic imbalances were large even if they had shrunk appreciably during the downturn.
China allowed the yuan rise 21 percent against the dollar between July 2005 and July 2008 before effectively repegging the currency to help its exporters cope with a slump in global demand.
When the dollar weakens versus the euro, the yuan and other currencies that track the dollar do likewise, explaining why policymakers such as European Central Bank President Jean-Claude Trichet say there is no reason the euro should bear the burden of adjustment in global economic relationships.
Speculation of an early yuan rise increased last week after the central bank said in its quarterly report it would consider major currencies -- not just the dollar -- when guiding the exchange rate.
The OECD's Elmeskov took a hardnosed view of the prospects of any immediate change of heart by Beijing, saying:
"The need to tighten monetary conditions is prospective more than acute." (Editing by Andy Bruce)