Chinese Yuan: PBoC Acts to Curb Appreciation - Societe Generale

An 8.3% fall in the CSI 300 in October, its steepest monthly decline in more than a decade, has prompted renewed intervention by Chinese authorities, according to Societe Generale. Around RMB100bn was injected by the PBoC through a one-year swap, while the FX RRR will rise from 4% to 6% on 15 November to restrain one-way CNY appreciation. With previous equity-support measures having failed, investors remain uncertain whether the latest action will work.

Equity losses spur liquidity injection and FX action

"Back in Asia, Chinese policymakers are once again stepping in to stabilise domestic markets after the CSI 300 slumped 8.3% in October, its worst monthly performance in more than a decade."

"The move comes after weak household consumption, lingering property-sector headwinds and growing investor unease over the sustainability of AI-related earnings growth pushed the CSI 300 below the psychological support of 4,000 late last week."

"Previous attempts to stabilise sentiment, including state-backed equity purchases in July and administrative measures aimed at discouraging selling last month, failed to lift sentiment, leaving markets questioning whether the latest intervention will prove more effective."

"Following discussions with the NFRA and CSRC, the PBoC earlier today conducted a one-year swap operation that injected roughly RMB100bn ($15bn) of liquidity into the financial system."

"Separately, the CNY ended its 13-day winning streak, the longest in three decades, after the PBoC earlier today announced that it will raise the FX RRR from 4% to 6%, effective 15 November, to curb excessive one-way appreciation pressure on the currency."

"According to Reuters calculations, the move will drain an additional $24bn of dollar liquidity from the financial system and reverses the decision of September 2023 to lower the FX RRR, which was aimed at stemming rapid yuan depreciation and capital outflows at the time."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Find out more.)