Chinese yuan seen steady but band to be expanded to 3 percent

China will likely keep its yuan currency steady over the coming year even as it widens the daily trading band in a symbolic sign that it is sticking with market reforms, a Reuters poll showed.
Further weakness in the world's second-largest economy and a savage 25-percent stock market plunge since mid-June have prompted the People's Bank of China to effectively freeze the yuan at around 6.20 to the dollar.
The cabinet said last month it would allow the yuan to fluctuate more to support weak exports. Many economists took that as an intention it would widen the trading band, despite the vague wording being identical to language used before.
The trading band was last widened in March 2014 to allow a 2 percent daily fluctuation on either side of its official fixing - wide enough by any international standards if the currency is actually allowed to move that much.
Analysts polled by Reuters expect the trading band to be widened in the next 12 months to 2.5 percent to 4 percent on either side of the fix.
Still, they predict the PBOC will hold the yuan steady around Friday's
level of 6.21 in one month and in three months and see it at 6.20 in a year.
Those expectations were largely unchanged from last month's poll.
"China's equity market is experiencing a hard landing. This could create downside risks to growth domestically and the rest of EM given the potential impact on commodity prices," said Rohit Garg, emerging Asia FI/FX strategist at BofA-ML.
Other emerging market currencies are likely to set new lows in coming months as the US moves closer to raising interest rates for the first time in nearly a decade.
The Indian rupee, meanwhile, has largely held its ground against a surging dollar so far, falling just around 1 percent since the start of the year even as the Reserve Bank of India cut interest rates three times in an effort to shore up the economy.
At a meeting this week, it left the door open for further easing, though market watchers are warily eyeing a pick-up in inflation.
The poll taken this week showed the rupee will trade at 64.04 per dollar by end-August, 64.25 in six months and weaken to 65.00 in a year. It was trading around 63.81 on Friday.
Those forecasts were similar to July's poll.
The 12-month forecast is still the lowest in many years of Reuters polls and, if realised, would mark the weakest exchange rate for the rupee since September 2013, when the Fed announced it would begin tapering its massive stimulus programme.