LONDON Asset management giant PIMCO said on Thursday it thought there was a chance China could freely float its currency, the yuan, this year.
The firm's head of Asian portfolios, Luke Spajic, said in a note Beijing was finding it impossible achieve three goals simultaneously: a stable or fixed foreign exchange rate, free capital movement and an independent monetary policy.
Combining tighter financial conditions with this policy trilemma therefore means the yuan would probably remain an "escape valve".
"Over the year, our base case is for the yuan to decline against the U.S. dollar by a mid- to high-single-digit percentage," Spajic said.
"However, we also think the possibility that the PBOC will allow the yuan to float freely, or at least widen its trading band, has increased."
(Reporting by Marc Jones, editing by Nigel Stephenson)