MUFG Bank analysts Lin Li and Khang Sek Lee note the People’s Bank of China is keeping USDCNY fixings below 7.0000, allowing the Chinese Yuan to act as a stabilizing anchor for Asia FX. Analysts expect subdued CPI to sustain a dovish PBOC stance and see scope for a 10 bps policy rate cut and 50 bps RRR reduction by Q1 if growth disappoints.

CNY resilience but growth still soft

"We expect the CNY to remain a stabilizing anchor for most regional FX, supported by the PBOC continuing to set the daily USDCNY fixing rate below the 7.0000 level."

"If there is any downside growth surprise in the first two months (next official data release for retail sales, FAI etc is mid-March), we may see a further easing of 10bps cut on policy rate and 50bps cut on RRR by Q1."

"While this may signal PBoC shift to allow slightly more CNY appreciation, we remain cautious of the appreciation pace as domestic activities have remained soft which increased the risk of imminent rate cuts."

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