FXStreet (Bali) – A few days ago, the PBOC announced reserve requirement ratios for overseas banks’ RMB deposits placed onshore, with ANZ Research Team noting that while the longer term aim is to establish a mechanism for the PBoC to manage liquidity, the near-term objective is to tighten liquidity and deter speculative positions in CNH.
Key Quotes
“The normalising of the RR ratio is aimed at establishing a long-term mechanism for the PBoC to manage CNH liquidity. It is different from the current market-talked ad-hoc administrative methods (such as suspending domestic banks providing RMB liquidity to offshore banks).”
“However, we believe that part of the authorities’ reasoning for introducing it now is to tighten the CNH liquidity and push up CNH interest rates to make it more expensive to short the currency.”
“Following the depreciation pressure in the early part of the year, the authorities have been seeking to stabilise the RMB via setting stronger and stable fixings, intervening in the offshore market and re-iterating yuan stability.”
“As we noted in our research note last week, we suspect that the authorities are using the same playbook as the post-August devaluation period in an attempt to stabilise the currency.”
“The measure fits nicely with this playbook, recalling that last year the PBoC introduced margin requirements for onshore forward hedging in a bid to stem speculation via forwards. This time, by imposing the RR ratio and pushing CNH HIBOR higher, it is hoped that this will deter speculators from shorting CNH by making it more expensive to fund such a position.”
“As with last year’s experience, however, while the authorities may be successful in stabilising the currency in the near term, depreciation pressure is unlikely to go away. Ultimately, we still expect the RMB to weaken, given the growth and deflation risks that China is facing.”
(Market News Provided by FXstreet)