Experts say Beijing could let market forces guide the yuan lower against the dollar

China will not do a one-off large devaluation of the renminbi or yuan, but policymakers could still weaken the currency by stealth, analysts told CNBC on Thursday.

Ever since Beijing surprised the world by unexpectedly depreciating the renminbi in August, money managers such as Kyle Bass, David Tepper and Bill Ackman have ramped up bearish bets against the yuan.

Concerns that the currency could fall sharply have been exacerbated by funds flowing out of the mainland, with China's foreign-exchange reserves falling to $3.20 trillion at the end of February, dropping from $3.23 trillion the previous month. That followed $100 billion per month in average currency outflows during November, December and January.

Some analysts, however, are skeptical of expectations for a big one-off drop for the currency.

For one, Chinese Premier Li Keqiang said earlier Thursday at the Boao Forum for Asia in China's Hainan province that the country will not devalue its currency to boost exports, according to a Reuters translation.

That followed comments in February from the People's Bank of China (PBOC) Governor Zhou Xiaochuan to Chinese financial magazine Caixin that there was no basis for the yuan to keep falling.

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But despite those assurances, Mitul Kotecha, head of Asia forex and rates strategy at Barclays, told CNBC's "Street Signs" that he still expects the yuan to weaken to 7 against the dollar by the end of the year.

The dollar is currently fetching around 6.5097 yuan. On Thursday, the PBOC fixed the yuan mid-point at 6.5150, compared with Wednesday's fix of 6.4936.

But Kotecha doesn't think China needs a large one-off devaluation for the currency to weaken to his target level.

"I think we can get there by stealth," said Kotecha, implying market forces could help to weaken the yuan gradually. 'If we look in the past, when the dollar had been strong, China had allowed its currency to gradually depreciate." He expects a gradual move won't cause any shockwaves in the market.

He isn't alone in expecting a weaker yuan.

Lim Say Boon, chief investment officer at DBS Private Bank, agreed, suggesting that would allow Beijing to say "market forces" are at play.

Previously, the Chinese leadership has said it wants to make the yuan's exchange rate more market-driven.

Lim added that China will be careful to not do a large, one-off devaluation because it "would be a huge test of their credibility." But he still expects further weakness in the currency, forecasting a drop to 6.7 or 6.8 against the dollar by the end of the year.

Kotecha expects the yuan weakness against the dollar in the second half of the year will be largely driven by a combination of dollar strength and weakness in China's capital markets.

"We do think the dollar will rebound as we go into the months ahead," he said, as the U.S. growth story remains intact and markets will start re-pricing U.S. Federal Reserve rate hikes. At the same time, Kotecha expects capital will continue to flow out of China and the economy will continue to face pressure from relatively high debt levels.

Corporate debt stands at around 160 percent of gross domestic product, double the size of the U.S., according to a Thomson Reuters study last year.

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