China may broaden the daily trading band of renminbi (RMB), or the yuan, against the U.S. dollar soon, a further step in its exchange rate reform, an economist predicted Friday.
The range is likely to be expanded to 3 percent from the existing 2 percent in the third quarter, Zhu Haibin, chief economist of J.P. Morgan China, said in a research note.
The State Council, China's Cabinet, announced on July 24 that it will broaden the RMB daily trading band but did not disclose any more details.
Chinese banks can exchange yuan on the foreign exchange spot market at 2 percent above or below the central parity rate against the dollar announced by the China Foreign Exchange Trading System each trading day.
The RMB exchange rate on the spot market may "depreciate modestly in the short term after the band widening and it will hover around 6.30 against the dollar by the end of this year," Zhu predicted.
The central parity rate of the RMB stood at 6.1174 against the U.S. dollar Friday, according to the China Foreign Exchange Trading System.
China has taken a gradual and steady pace in raising its currency's daily trading limit, from 0.3 percent in 1994 to 0.5 percent in 2007 and 1 percent in 2012 to the latest 2 percent in 2014.