Chinese Yuan: UOB expects modest weakening against US Dollar

6% is the new foreign-currency reserve requirement ratio announced by the People’s Bank of China (PBoC). UOB’s Ho Woei Chen and Peter Chia note that the increase takes effect on 15 November and aims to temper Chinese Yuan (CNY) appreciation. With interest rate differentials widening, the analysts remain cautious on CNY over the medium term and anticipate a modest USD/CNY rebound. UOB’s forecasts will be updated on 6 November.

6% PBoC reserve ratio strengthens 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.)