RMB hits record high for three days running (4)

In April, the central bank widened the band that it allows the yuan to diverge from the official midpoint, to 1 percent from 0.5 percent. Since then, the currency has exceeded the upper limit of the trading band on more than 100 trading days, indicating the need to further broaden the range, Chow said.

Analysts also said yuan speculation has led to capital inflows into Hong Kong as investors seek ways to gain access to the mainland market.

Chow said: "Smart money is likely to continue flowing (into Hong Kong), as China's economy and fiscal stance remain better than most countries in the world. Maintaining the Hong Kong dollar's peg with the US dollar might be the only practical option for the Hong Kong government."

Norman Chan, chief executive of the Hong Kong Monetary Authority, said in a statement on Friday that talk of so-called hot money flowing into Hong Kong from overseas investors for speculation on the yuan is unfounded.

He said overseas investors can directly buy yuan in the offshore market with US dollars if they are bullish on the appreciation of the currency.

It is impossible for such inflows to threaten China's financial stability or safety, given the country's banking system has assets worth 126 trillion yuan, he said.

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