The pace of appreciation in China's yuan is set to slow sharply over the next 12 months, as jitters over Europe's debt crisis and a slowdown in the world's second-largest economy may prod some investors to pull out funds, a Reuters poll showed. The median forecast by 37 analysts showed the yuan is on track to climb to 6.25 against the dollar in a year.
That would be a 1.9 percent rise from the spot rate of 6.3688, less than half of the 4.7 percent rise recorded in 2011. The poll was conducted before China's central bank announced a surprise interest rate cut late on Thursday. A similar Reuters poll in February forecast the yuan could gain 2.8 percent over a year.
The yuan will likely inch up to 6.30 per dollar in three months, and to 6.29 in six months, according to the poll.
"China's exports will be hit by the global downturn and we have also seen capital outflows that tend to ease upward pressure on the yuan," said Li- Gang Liu, chief China economist at ANZ Bank in Hong Kong. "The pace of yuan appreciation will slow significantly this year."
The yuan recorded its largest one-month drop in history against the dollar in May, losing nearly 1 percent, as the European crisis prompted global investors to move into safe-haven assets such as the dollar and US Treasuries.
China's central bank and commercial banks sold a net 60.6 billion yuan ($9.52 billion) worth of foreign exchange in April, signalling capital outflows fuelled by the persistent domestic and global risk, according to the latest official data. Analysts forecast in a Reuters benchmark poll in May that China would deliver its weakest quarter of growth in three years in the second quarter at 7.9 percent, which would also mark the sixth straight quarter of slowing growth.
The People's Bank of China on Thursday cut benchmark lending and deposit rates by 25 basis points - the first since the post-Lehman global crisis in late 2008 - to combat faltering growth.
The central bank widened the yuan's daily trading band in April, a landmark reform to allow the market to play a bigger role in setting the exchange rate, but it still keeps a tight grip on the currency.
The yuan has shed about 1 percent against the dollar so far this year, compared with a 3.8 percent drop in the Indian Rupee and 3 percent in the Indonesian rupiah, Asia's worst performers in 2012.
Still, the yuan hovers near a 10-year high against the euro , which could pose a problem for Chinese exporters. Europe accounts for around one-fifth of Chinese exports.
Fears of a sharp drop in the yuan are overdone, given China's still solid trade surplus and its $3.3 trillion foreign exchange reserves - the world's largest, which give the central bank ample ammunition to keep the yuan stable. China may tolerate certain yuan weakness to help local exporters, but any sharp yuan falls could stoke political pressure from the United States, which has long accused Beijing of holding down the currency to gain a trade advantage.