PBOC Sets USD/CNY Midpoint at 6.7808, Strongest Yuan Fix Since February 2023
Key Takeaways
- •The PBOC set the USD/CNY reference rate at 6.7808, above the 6.7196 market estimate.
- •The fixing was the strongest onshore yuan level since 8 February 2023.
- •The central bank conducted no 7-day or overnight reverse repo injections, while 327.4 billion yuan matured and was withdrawn from the system.
- •China kept its 1-year Loan Prime Rate at 3% and its 5-year Loan Prime Rate at 3.5%.
PBOC sets USD/CNY midpoint today at 6.7808, versus estimate at 6.7196
The People's Bank of China (PBOC) set the USD/CNY reference rate at 6.7808 for the trading session ahead, compared with an estimate of 6.7196.
The fixing marks the strongest level for the onshore yuan since 8 February 2023.
The PBOC allows the yuan to fluctuate within a +/- 2% band around this reference rate. The daily midpoint, also known as the central parity rate, is published each morning and anchors onshore trading; the gap between the official setting and market estimates is closely watched by traders as a read on the central bank's tolerance for currency strength or weakness, which gives the estimate-versus-fix comparison its significance.
The central bank also left its 7-day reverse repurchase operation volume at zero again, and it conducted zero overnight reverse repos. A total of 327.4 billion yuan of overnight reverse repos matured today, resulting in a net withdrawal of 327.4 billion yuan. Reverse repos are the PBOC's main tool for managing short-term liquidity in the banking system, so a session with no new injections while earlier contracts mature mechanically drains cash from the interbank market.
Earlier, China's 5-year and 1-year Loan Prime Rates (LPR) were left unchanged at 3.5% and 3%, respectively. The LPR is the benchmark reference rate for new bank lending, reset monthly by a panel of commercial banks; the 1-year tenor guides corporate loan pricing while the 5-year tenor underpins mortgage rates. With lending rates on hold, attention in the currency market falls on the sequence of upcoming daily fixes and open-market operations.
