Mon, Jan 24, 2005 - Page 10 News List

Analyst: China to revalue yuan by July


China will probably let its currency appreciate against the US dollar by the end of June, Merrill Lynch & Co said.

The firm previously predicted China would strengthen the yuan by Dec. 31.

Merrill, the world's largest securities firm, expects that faster inflation will prompt policy makers in China to revalue the yuan 10 percent higher against the US currency.

"Our sense is that the underlying inflationary forces haven't really stopped," Yianos Kontopoulos, head of foreign-exchange strategy in London at Merrill, said in a telephone interview. "We haven't given up on the forecast."

Merrill also expects Chinese policy makers to link the value of the yuan to a basket of currencies, including the Japanese yen and the euro, rather than only the US dollar.

China has pegged its currency at a rate of 8.28 to the US dollar for a decade.

Firms including Goldman Sachs Group Inc and Morgan Stanley predict that China is likely to change the peg to the dollar at any time.

Though "disappointed" that China didn't revalue last year as predicted, Kontopoulos said it's better that he makes precise projections.

"I concentrate on what I perceive to be the most likely scenario," he said. "I need to try to be as specific as possible."

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