China is likely to let its tightly controlled yuan appreciate at a faster clip this year as part of heightened efforts to quell inflation, a Reuters poll showed on Tuesday.
The yuan is expected to hit 6.3 per dollar by the end of 2011, a rise of 5.4 percent from Monday's spot rate, compared with last year's 3.6 percent annual rise, according to the poll conducted ahead of President Hu Jintao's visit to Washington next week.
The currencies of India and Russia will appreciate modestly over the next 12 months, while the Brazilian real is expected to weaken slightly, according to median predictions from more than 30 analysts.
With economic power shifting to the emerging world, the BRIC nations have assumed ever-greater importance. China is also inviting South Africa, Africa's top economy, to join the club.
China, the world's second-largest economy, is under pressure from its trading partners to allow a faster rise in the yuan.
Beijing will nudge the yuan up 0.6 percent in the next month, 1.3 percent in the next three months and 2.4 percent in the next six months, the poll of more than 40 economists and strategists showed.
The poll reinforced the perception that the government is tolerating faster yuan rises to help put a lid on inflation, which raced to a 28-month high of 5.1 percent in November.
"China's inflation is accelerating, and a stronger exchange rate along with higher interest rates is needed to bring about tighter financial conditions and more sustainable growth," said Jonathan Cavenagh, currency strategist at Westpac in Singapore.
"Chinese growth is still expected to remain robust and this leaves room for further currency strength to help the process of gradual orientation of growth away from the external sector to internal sources."
Rich-world policymakers say China keeps its currency undervalued to give its exporters an unfair advantage. U.S. President Barack Obama, seeking to boost exports and stimulate job growth, is expected to push Hu to let the yuan rise more quickly.
But data on Monday showed China's trade surplus narrowed in 2010 for the second straight year, giving Beijing grounds to rebuff such calls.
The analysts polled by Reuters are seemingly more bullish on the yuan than investors. Benchmark one-year offshore non-deliverable forwards imply a 2.8 percent rise in the yuan against the dollar over the coming 12 months.
China said in June it would make the yuan more flexible when it unshackled the currency from a two-year dollar peg, but it has been treading cautiously despite heavier foreign pressure.
China allowed the yuan to gain about 7 percent annually between July 2005, when the currency was formally depegged from the dollar, and July 2008, when the quasi-fixed link was restored to help Chinese exporters weather the global storm.
Analysts expected the Brazilian real, considered one of the most overvalued currencies in the world after gaining about 50 percent since the end of 2008, to weaken to 1.7 per dollar by the end of 2011 from 1.69 currently.
Ever-richer consumers have driven Brazilian domestic growth while the country's high interest rates have attracted floods of foreign capital to its bond market.
Those factors should continue to support the real in 2011. In fact, interest rates could get even higher as policymakers fight to control inflation after it sped up to a six-year high last month.
However, as Brazil's booming economy settles into a more sustainable pace of growth and developed markets become more attractive again, the real may not be such a great bet.
"The United States has been slowly recovering, and this will probably result in an appreciation of the dollar, which will consequently cause the real to depreciate here," says Reginaldo Galhardo, head of currency trading at the Treviso brokerage in Sao Paulo.
Analysts saw the partially convertible Indian rupee at 43.50 per dollar by the end of 2011, which would be an appreciation of 4 percent from Tuesday's level of around 45.3.
"Although the dollar is expected to stay steady to positive through short/medium term, strong rupee fundamentals will deplug its traction with dollar move against euro," said J. Moses Harding, head of global markets at IndusInd Bank.
"So I will stay with expectations of 3-5 percent appreciation on the year for the rupee."
The Russian rouble was also seen closing the year slightly stronger at 29.8 to the dollar, or a rise of around 3 percent in 2011 from 30.6 on Tuesday.
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