China will make a one-off revaluation of the renminbi (RMB) within the first quarter of the year and move to a trade-weighted basket of currencies to set its exchange rate by the second half, investment house Goldman Sachs said.
It expected China to revalue the RMB by 2.5% against the US dollar in a "prudent first move" towards a more flexible exchange rate regime. The measures would lead to a 5% cumulative appreciation over the next 12 months, it said.
The US dollar has been hitting fresh lows against the euro and other major currencies on an almost daily basis and this is pressuring China to address its exchange rate policy, the investment bank said in a client note.
The predicted exchange rate would be RMB 8.07, 7.68 and 7.54 to the dollar in three, six and 12 months respectively.