Chinese Yuan: PBoC Tempers Appreciation, Says MUFG

6% is the new FX reserve requirement ratio set by the People's Bank of China (PBoC), MUFG notes. Effective 15 November, the increase from 4% followed USD/CNY's move towards 6.65. The measure is seen as withdrawing about USD24 billion in FX liquidity to moderate CNY appreciation, not reverse it. MUFG's USD/CNY forecasts remain unchanged at 6.65 by end-2026 and 6.50 by Q3 2027.

6% FX reserve ratio to moderate CNY gains

"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.)