PBoC Slows Chinese Yuan’s Advance – MUFG

An increase in the FX reserve requirement ratio from 4% to 6%, effective 15 November, was announced by the People's Bank of China (PBoC) after USD/CNY approached 6.65, MUFG notes. Expected to absorb about USD24 billion in FX liquidity, the measure is viewed as an attempt 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.

Policy adjustment seeks to curb pace of CNY appreciation

"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.)