Chinese Yuan: PBoC cools appreciation trend – Commerzbank
Commerzbank’s Charlie Lay and Dr. Henry Hao highlight that the People’s Bank of China raised the FX reserve requirement ratio to slow rapid CNY gains after a 13-session winning streak. They stress the move is counter-cyclical, aimed at preserving two-way flexibility rather than reversing the appreciation trend, and note USD/CNY and USD/CNH both bounced to 6.67 on the announcement.
China's central bank, the People's Bank of China (PBoC), took action on November 15 to curb rapid appreciation of the Chinese Yuan (CNY). The PBoC increased the foreign-currency reserve requirement ratio (FX RRR) by 2 percentage points to 6%, effective immediately. This move came after 13 consecutive days of CNY gains, the longest winning streak since 1996.
The PBoC's announcement caused USD/CNY and USD/CNH to spike to 6.67. The hike aimed to slow down CNY's appreciation, preserving flexibility rather than reversing the trend. The larger FX reserve requirement forces banks to hold more foreign currency deposits, reducing dollar liquidity and thus easing upward pressure on CNY.
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