Following are forecasts by bankers and strategists on the level of expected yuan appreciation after China ditched its peg to the U.S. dollar.
QING WANG, MORGAN STANLEY (JUNE 20)
We maintain our forecasts for the USD/CNY spot rate to reach 6.60 by end 2010 and 6.20 by end 2011.
HELEN QIAO AND YU SONG, GOLDMAN SACHS (JUNE 20)
While the central bank stated it will reintroduce the emphasis of reflecting market supply and demand with reference to a basket of currencies in the CNY exchange rate, we believe the most likely scenario is for the CNY to return to a crawling peg against the USD, resembling the exchange rate regime during 2005-2008, at least initially ... While we adjusted our exchange rate forecasts of the AEJ currencies on June 10 to incorporate our new EUR/USD forecasts, we have kept our 3, 6, and 12-month USD/CNY exchange rate forecasts unchanged at 6.74, 6.66, 6.49.
ANDY ROTHMAN, MACRO STRATEGIST AT CLSA IN SHANGHAI (JUNE 19): The PBOC statement makes clear that the currency will move only very gradually. I expect only about 0.2 percent a month until the situation in Europe stabilizes. Then look for the appreciation to return to the 5-7 percent pace of the 2005-2007 period.
BRIAN JACKSON, STRATEGIST AT ROYAL BANK OF CANADA IN HONG KONG (JUNE 19):
We have for several months been forecasting a shift in China's exchange rate policy and for USD/CNY to start falling by the middle of this year -- our long-standing forecast has been for USD/CNY to fall to 6.70 by end-Q2 (a move of 1.9 percent from current levels) and to 6.50 by end-2010 (a move of 5.0 percent). Concerns about the weak EUR and euro area have clearly played a major role in delaying a move lower in USD/CNY, but we have remained confident that such a move would occur based on our view that it would be in China's own best interests -- a stronger CNY would not only help prevent trade tensions from developing later this year but, more importantly, would help to keep China's recovery on a sustainable path and to rebalance its economy. The PBOC's announcement strongly suggests to us that Beijing is ready to move in this direction.
C.FRED BERGSTEN, PRESIDENT OF THE PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS IN WASHINGTON (JUNE 19):
If the Chinese are smart, they'll let the rate jump up the first few days of next week -- 5, 6, 8 percent -- so as to blunt any ongoing inflow of capital and try to limit the one-way-bet idea and the speculative inflow.
BEN SIMPFENDORFER, ECONOMIST AT ROYAL BANK OF SCOTLAND IN HONG KONG (JUNE 19):
A more flexible CNY will be welcomed by some of China's critics. But it is clearly unlikely to appease those calling for a large revaluation. Tensions will accordingly persist, especially heading into the U.S. November elections, and should Europe's economic woes worsen. There is accordingly no change to my call for around 3 percent annualized appreciation against the USD over the next year. The call assumes a steady pace of appreciation and targets 6.750 by end-10. The chances of a one-off revaluation remain small in spite of today's move.
GLENN MAGUIRE, NON-JAPAN ASIA ECONOMIST AT SOCIETE GENERALE IN HONG KONG (JUNE 19):
We believe the likely reality is that the yuan will appreciate by more than the statement implies over the remainder of this year and into 2011. Again, for China to maintain a degree of equilibrium in its balance of payments, the currency will need to appreciate sufficiently to mute the commodity price effects resulting from its ongoing successful domestic policies. As a rough estimate, the pace of appreciation is therefore likely to match the import prices in the medium term.
JUN MA, CHIEF CHINA ECONOMIST AT DEUTSCHE BANK IN HONG KONG (JUNE 19):
There will be no one-off revaluation of the RMB vs the USD. This is largely due to the fact that the RMB has already appreciated 15 percent against the EUR over the past two months and the Chinese leadership has been increasingly concerned about the potential negative impact of the European sovereign crisis on Chinese exports.
The official trading band for the RMB/USD rate will resume the previous +/- 0.5 percent around the daily fixing rate (the middle rate) announced by the SAFE (State Administration of Foreign Exchange). The actual volatility in the future, however, will be greater than that between 2005 and 2008, in our view. The greater flexibility (or two-way volatility between the RMB and the USD) will help mitigate hot money inflows. As for the pace of future RMB appreciation vs the USD, we think it will be modest relative to market expectations a few months ago but somewhat faster than what's implied by the NDF market last Friday.
PRASENJIT BASU, CHIEF ECONOMIST ASIA EX-JAPAN WITH DAIWA CAPITAL MARKETS IN SINGAPORE, JUNE 19
Ideally, China's authorities would prefer to have two-way movement in the renminbi, but that is difficult to achieve given the large current account surplus and the high net capital inflows. Initially, we are likely to see very gradual appreciation in the currency, as the daily mid-point on the yuan is edged up. But restraining speculative pressure is going to remain very challenging, both for the PBOC and other Asian central banks, and we expect the RMB to be at 6.45/US$ by end-2010.
(Compiled by Alan Wheatley, Paul Eckert and Umesh Desai, Editing by Dean Yates)