Chinese Yuan: PBoC Acts to Curb Yuan Appreciation - Societe Generale

Investors remain uncertain whether fresh intervention by Chinese authorities will work after earlier efforts to support equities failed, according to Societe Generale. The renewed action follows an 8.3% decline in the CSI 300 in October, its steepest monthly fall in over a decade. Through a one-year swap, the PBoC injected around RMB100bn and, to restrain one-way CNY appreciation, will increase the FX RRR from 4% to 6% on 15 November.

Can liquidity and FX measures steady markets after the equity slump?

"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. Know more.)