Chinese Yuan: How is the PBoC tempering Yuan gains? – MUFG

CNY appreciation is expected to slow rather than reverse following a change in FX reserve requirements, according to MUFG. After USD/CNY moved towards 6.65, the People's Bank of China (PBoC) increased the FX reserve requirement ratio from 4% to 6%, effective 15 November. The move is seen as absorbing about USD24 billion in FX liquidity. MUFG's USD/CNY forecasts remain unchanged at 6.65 by end-2026 and 6.50 by Q3 2027.

Can the policy adjustment moderate CNY strength?

"In China, PBOC raised the FX reserve requirement ratio to 6% from 4% after USD/CNY fell towards 6.65, effective 15 November."

"The measure is expected to lock up approximately USD24 billion in foreign exchange liquidity."

"This policy, in our view, is to reduce the pace of CNY’s appreciation against the Dollar, rather than an effort to reverse CNY appreciation trend."

"CNY’s strengthening this year has been supported by China’s large trade surplus and rising corporate FX conversion of proceeds from trade surplus to Reminbi."

"We maintain our USD/CNY forecasts at 6.65 by end-2026 and 6.50 by Q3 2027."

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