The People’s Bank of China (PBOC), China’s central bank, is responsible for setting the daily midpoint of the yuan (also known as renminbi or RMB). The PBOC follows a managed floating exchange rate system that allows the value of the yuan to fluctuate within a certain range, called a “band,” around a central reference rate, or “midpoint.” It’s currently at +/- 2%.
I noted the strength of the RMB yesterday:
- China yuan hits 14-month high even as weak consumer demand clouds economic growth outlook
- Industrial output grew 4.8% year-on-year in November, slowing slightly from October and undershooting market expectations.
- Retail sales, a key gauge of household demand, decelerated more sharply, rising just 1.3%, down from 2.9% the previous month and well below forecasts.
- The figures reinforce signs that China’s recovery remains uneven and heavily reliant on the supply side: Evidence of fragile consumption continues to mount. Passenger car sales slumped 8.5% in November, the steepest decline in ten months, while the extended Singles’ Day online shopping festival failed to generate the usual boost in spending.
Yesterday’s close at 7.0482 was reflective of the sustained RMB bid.
Today’s mid-rate, at 7.0602, is the strongest setting (for CNY) since October 9 last year.
PBOC injected 135.3bn yuan via 7-day reverse repos at an unchanged rate of 1.40%
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China operates a managed floating exchange rate system, under which the renminbi (yuan) is allowed to trade within a prescribed band around a central reference rate, or midpoint, set each trading day by the PBOC. The current trading band permits the currency to move plus or minus 2% from the official midpoint during onshore trading hours.
Each morning, the PBOC determines the midpoint based on a range of inputs. These include the previous day’s closing price, movements in major currencies, particularly the US dollar, broader international FX conditions, and domestic economic considerations such as capital flows, growth momentum and financial stability objectives. The midpoint is not a purely mechanical calculation, allowing policymakers discretion to guide market expectations.
