The Chinese yuan will rise 4 percent against the dollar in the coming 12 months, making it the strongest performer among the BRIC country currencies, according to the latest Reuters poll.
As the Chinese economy expands with rising foreign exchange reserves, the yuan, also known as the renminbi, is set to extend an uninterrupted rise since it was de-pegged from the dollar just over a year ago.
A poll of 36 strategists and analysts, taken mostly before the People’s Bank of China (PBOC) raised interest rates for the third time this year on Wednesday, showed the yuan trading at 6.40 in three months, 6.30 in six and 6.20 in 12 months.
That compares with 6.45, 6.38, and 6.24 in the previous quarterly BRIC FX poll.
BRIC countries have emerged as important players in the global economy, providing a ballast when developed economies plunged in the wake of the global financial crisis.
But that prominence has attracted a flood of investment from abroad in recent years, making national currencies expensive and threatening export markets.
“The (Chinese) currency is on a clear medium-term appreciation trend,” said Robert Minikin, a senior foreign exchange strategist at Standard Chartered in Hong Kong.
He added that China may widen the trading band between the yuan and the dollar in the onshore market soon, in an effort to make the exchange rate more flexible and market-based.
But China, the world’s largest exporter, is unlikely to conduct another “one-off” revaluation or allow sharp appreciation in the yuan.
Lu Zhengwei, chief economist for Industrial Bank in Shanghai, said using a rise in the yuan to fight imported inflation could backfire as it might encourage speculative capital inflows and push up prices further.
The PBOC raised the benchmark lending and deposit rates by 25 basis points each on Wednesday in an effort to tame rampant inflation despite clear signs growth is easing.
China’s central bank is set to raise rates once more this year, according to a snap Reuters poll on Thursday.