Chinese Yuan: Modest decline expected against US Dollar – UOB

UOB’s Ho Woei Chen and Peter Chia note that the People’s Bank of China (PBoC) has announced an increase in the foreign-currency reserve requirement ratio to 6%, effective 15 November, to slow Chinese Yuan (CNY) appreciation. The analysts maintain a cautious medium-term outlook on CNY amid widening interest rate differentials and expect a modest recovery in USD/CNY. UOB will update its forecasts on 6 November.

PBoC move reinforces cautious CNY outlook

"In a statement on Tue (3 Nov), the People’s Bank of China (PBOC) said the reserve requirement ratio for foreign currency deposits (FC RRR) will be increased by 2 ppt to 6% from the current 4%, effective from 15 Nov."

"The PBOC uses adjustments to the FC RRR as a primary tool to manage domestic foreign-currency liquidity and stabilise the value of the CNY."

"We have recently shifted to a cautious medium-term outlook on CNY due to the widening interest rate differential with the USD."

"The FC RRR hike further reinforced our view of a modest recovery in USD/CNY from here."

"We will update our USD/CNY forecasts at the upcoming FX & Interest Rate Monthly Report scheduled to be released on 6 Nov."

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