PBoC unwinding policy of supporting the CNY - Rabobank

Analysts at Rabobank explain that after having spent the past two years supporting the CNY with a range of measures, the PBoC is now unwinding this policy in response to the recent surge in the value of the currency.

Key Quotes

“Specifically the PBoC has scrapped the reserve requirement for financial institutions settling FX forward yuan positions which had made its expensive to buy dollars while selling the yuan.  The PBoC also removed the reserve requirements of foreign banks’ yuan deposits, which will allow more yuan flows into the offshore market and lessen the costs associated with betting against the yuan.  Press reports also suggest that the authorities will phase out measures curbing Chinese outbound investment.  It will be replaced by more formal guidelines.”

“The news comes following a rebuild of China’s FX reserves and also on the back of concerns that the recent rise in the value of the CNY was distorting overseas trade.  Last week’s release of Chinese August trade data brought a weaker than expected 5.5% y/y rise in exports and a 14.4% y/y surge in imports as the value of overseas goods cheapened in CNY terms.”