PBOC sets USD/ CNY reference rate for today at 7.1876 (vs. expectations of > 7.20)

Background expectations to this today:

• All eyes on the PBoC yuan reference rate today – will it be above 7.20?

The People’s Bank of China (PBOC), China’s central bank, is responsible for setting the daily midpoint of the yuan (also known as renminbi or RMB). The PBOC follows a managed floating exchange rate system that allows the value of the yuan to fluctuate within a certain range, called a “band,” around a central reference rate, or “midpoint.” It’s currently at +/- 2%.

How the process works:

• Daily midpoint setting: Each morning, the PBOC sets a midpoint for the yuan against a basket of currencies, primarily the US dollar. The central bank takes into account factors such as market supply and demand, economic indicators, and international currency market fluctuations. The midpoint serves as a reference point for that day’s trading.
• The trading band: The PBOC allows the yuan to move within a specified range around the midpoint. The trading band is set at +/- 2%, meaning the yuan could appreciate or depreciate by a maximum of 2% from the midpoint during a single trading day. This range is subject to change by the PBOC based on economic conditions and policy objectives.
• Intervention: If the yuan’s value approaches the limit of the trading band or experiences excessive volatility, the PBOC may intervene in the foreign exchange market by buying or selling the yuan to stabilize its value. This helps maintain a controlled and gradual adjustment of the currency’s value.

The previous close was 7.3216

Despite the move lower for the CNY on Friday (USD/CNY higher) the People’s Bank of China held the line today with the reference rate under 7.2 again.

PBoC injects CNY 14.1bn via 7-day reverse repos, rate at 1.50%

• 89.1bn mature today
• net drain is 75 bn yuan

This article was written by Eamonn Sheridan at www.forexlive.com.