The People’s Bank of China (PBOC) controls the daily value of the yuan using a managed floating exchange rate system. The yuan can vary within a +/- 2% range from this central rate. The yuan closed at 7.1750 yesterday. Recently, the PBOC injected 509.3 billion yuan through 7-day reverse repos while keeping the interest rate at 1.40%. Today, 203.5 billion yuan is maturing, leading to a net injection of 305.8 billion yuan. This shows the central bank’s plan to manage liquidity and stabilize the currency market. By injecting 305.8 billion yuan, the central bank is doing two things. They’re providing short-term funds and signaling to the markets that they want to avoid too much tightening of liquidity. The interest rate remains at 1.40%, which means there’s no rush to change monetary policy right now. This stability, even with some maturities, indicates a desire to keep financial conditions positive. The reference rate is close to 7.17, near the weaker end of the allowed range. This can put pressure on outflows of capital. With the dollar gaining strength against other major currencies, the PBOC is being cautious with rate management. Fang’s team likely views this as a way to prevent the yuan from weakening too quickly, especially as capital movement faces more scrutiny. It’s important to understand that reverse repos do more than just add cash—they help manage expectations. When large cash injections coincide with maturity dates, the signal becomes clearer. Deng’s team may see these actions as establishing a baseline, rather than starting new cycles. This distinction matters if there’s renewed volatility in currency futures. Policymakers aim to keep exchange rates disciplined while ensuring ample liquidity, which means funding conditions should remain gentle. This reduces the need for drastic adjustments unless unexpected external data forces a change. In the short term, we might see wider gaps between offshore and onshore yuan rates, especially if traders like Li start considering dollar-related news from Washington. For now, the PBOC’s actions suggest a cautious effort to protect against market swings while avoiding speculation. From our perspective, the steady 1.40% interest rate indicates that we’re not expecting any changes soon. Soft money, predictable ranges, and planned reserve operations signal a preference for stability. Overall, these measures support funding rates and maintain a steady currency bias for the time being.

here to set up a live account on VT Markets now