China may widen its currency trading band by 1 percent in September and allow for a further 1 percent gain in the fourth quarter, should the nation's efforts to improve the banking industry be successful, Bank of America said.
China plans to pump US$120 billion into its biggest lenders to help state banks reduce bad loans before selling shares to the public, the China Business Post reported this week, without saying where it got the information. China, under international pressure to allow more flexibility in the yuan, has said the banking industry needs improving before it will relax the peg.
China is "trying to build a necessary infrastructure before they change the regime" of the yuan peg, said Simon Flint, a market strategist in Singapore at Bank of America Corp, the third-largest US bank by assets. Flint was speaking at the bank's media briefing titled "Emerging Market Outlook 2004."
Traders have been increasing bets that China will revalue its currency.
The yuan, which is fixed in a 0.3 percent band around 8.3 to the dollar, would strengthen to 7.822 in a year if freely traded, compared with 7.817 yesterday, forward contracts showed.
The currency may strengthen to 8.12 against the dollar by December, 8.08 by March next year, according to Bank of America.
The yuan will probably climb to 7.9 by the end of next year, the bank said.
Asian currencies also may strengthen this year as economic growth accelerates, prompting central banks to ease their currency sales, Flint said.
Regional economies including Thailand and Singapore are expecting quickening growth.
Singapore's economy may grow as much as 5 percent this year after it expanded 0.8 percent last year, Prime Minister Goh Chok Tong (
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