THE yuan, after holding steady at around 8.7 to the US dollar since January, will face its acid test after the Lunar New Year, say Hong Kong analysts.
They did not rule out a gradual depreciation to about 9.5 to the dollar if Beijing failed to bring inflation and the trade deficit under control as economic activity picked up after the festive season.
Jardine Fleming economist Daryl Ho said: ''After unifying the yuan rates from January, I could see the authorities lifting further controls on the currency after the Lunar New Year.
''I don't want to put a specific time-table on when this will happen but I won't be surprised to see them allowing the yuan to depreciate by an average of nine per cent by next year.'' That would probably mean that People's Bank of China (PBOC), the country's central bank, would allow market forces to play a much greater role under the managed float implemented from January 1.
But analysts said they did not expect the PBOC to allow a drastic drop to 11 or 12 yuan to the US dollar seen in the pre-July days of last year, as this would sharply erode the public's confidence in the currency and fuel speculation.
Last July, the PBOC stepped in to support the yuan by selling US dollars, making it stable at 8.7, a level that has become the benchmark since the unification of the official and swap rates.
