PBOC Raises Foreign Exchange Reserve Requirement Ratio, Rapid RMB Appreciation Put on Hold
nashnova research
The PBoC raised the foreign-exchange deposit reserve ratio by 2 percentage points to 6%, pushing USD/CNY from a year-high near 6.64 back to around 6.67 — the second counter-cyclical intervention this year, aimed at slowing the renminbi's rapid climb.
What did the PBoC do, and how did markets react?
The PBoC raised the FX deposit reserve requirement ratio (the share of foreign-currency deposits banks must set aside) by 2 percentage points, from 4% to 6%. This means → banks must lock up more dollars, draining freely tradable USD from the market and tilting supply-demand toward "dollars cost more."
USD/CNY immediately retreated from near 6.64 — the strongest level this year — to around 6.67. In plain terms = the renminbi's appreciation just got a speed bump.
This is the PBoC's second counter-cyclical FX intervention this year; the first, in March, adjusted the risk-reserve ratio on forward dollar sales.
How much has the renminbi appreciated this year?
USD/CNY hit a year-high near 6.64, a 4.91% appreciation from the start of the year.
The RMB exchange-rate index rose to 103.77, up 5.9% year-to-date.
China Merchants Macro estimates cumulative USD/CNY appreciation of 8.6% since the start of 2025, at a pace faster than last year. This means → the rally is not a minor drift — it is a sustained, accelerating trend.
Why act now?
China Merchants Macro notes a clear seasonal pattern: year-end through Lunar New Year is peak settlement season (settlement: exporters converting earned dollars into renminbi). The average January bank-client settlement surplus is $16.18 billion; December averages $12.02 billion; every other month comes in under $10 billion.
Exports this year have been exceptionally strong, meaning the year-end surplus could climb further — possibly topping last December's record. In plain terms = a wall of dollars is already queuing to convert into RMB; without intervention, appreciation could run unchecked.
Continued one-way appreciation would undermine the effectiveness and independence of China's monetary policy. This reflects a particularly acute risk given that Chinese policy is running in the opposite direction to developed-economy central banks.
Where does USD/CNY go from here?
China Merchants Macro expects USD/CNY to stay in a range-bound pattern near term. After the March intervention, the rate adjusted for roughly one month — suggesting this move's effect may last into December.
Once the seasonal settlement wave kicks in, the renminbi could resume a steady, moderate appreciation, with USD/CNY closing the year near 6.65.
This means → the PBoC is not trying to reverse the direction — it is trying to control the speed. The appreciation trend likely holds; the pace is what matters.
Why does the shift in FX reserves on the PBoC's balance sheet matter?
From Q3 the PBoC flagged the chain: "currency appreciation → surging settlement surplus → surging FX-position additions" — which effectively injects extra renminbi liquidity. FX reserves on the PBoC's balance sheet (funds outstanding for foreign exchange) work like an additional money tap.
Yet in the second half, despite continued appreciation and growing surpluses, the dollar-denominated FX position shrank by over RMB 1 billion from July to September. In plain terms = the PBoC has been quietly tightening that extra tap.
China Merchants Macro argues this explains why H1 saw stocks and bonds rise together while H2 shifted to a stock-bond seesaw. This reflects a marginal tightening of the liquidity environment — and rising short-term risk for RMB-denominated assets.
What other tools is Beijing preparing?
The State Council executive meeting for the first time called for improving market-stabilization mechanisms and enhancing market stability, aiming to cushion Chinese capital markets from external volatility.
Global liquidity is set to tighten further. This means → the policy toolbox will not be used just once — more combined measures may follow.
For investors: RMB assets face a window of heightened volatility in the near term, but policymakers are actively managing risk rather than reacting after the fact.
市场有风险，内容仅供研究参考，不构成投资建议。