The People’s Bank of China (PBOC) is tasked with establishing the daily midpoint of the yuan, also referred to as renminbi or RMB. The PBOC utilises a managed floating exchange rate system, permitting the yuan’s value to oscillate within a specified band around a central reference rate or midpoint, which is currently set at +/- 2%.

On the previous trading day, the yuan closed at 7.1874. Today, the PBOC injected 156.3 billion yuan using 7-day reverse repos at an interest rate of 1.40%. With 164 billion yuan maturing today, there is a net drain of 7.7 billion yuan.

Daily Midpoint Fix

This update offers a window into the ongoing guidance being exerted on the currency market by the mainland’s central bank, where daily midpoint fixes act as a strong signal to market participants. A midpoint of this sort, set within a narrow range, is not simply ceremonial; it frames expectations for the daily yuan direction and shapes everything from interbank swaps to longer-dated forwards. The -/+2% band leaves breathing room for natural fluctuations, but the tone is always set at the beginning of the session.

A closing level of 7.1874 against the dollar highlights the slight softening bias heading into the current session. It aligns closely with recent moves in other Asian currencies, though the yuan is always more tightly held, suggesting renewed preference from Beijing to avoid abrupt moves.

When we look deeper into the activity within the open market operations—where liquidity is added or taken away via short-term swaps—the tiny net withdrawal of 7.7 billion yuan seems almost understated on paper. But behind that figure is a message: conditions are stable enough to allow for some passive maturing of existing instruments without fresh injection. The 7-day reverse repo continues at 1.40%, a rate that has remained unchanged in recent weeks, signalling policy continuity. They’re letting some liquidity be retired without replacing it fully, which could be a gentle reminder that domestic monetary policy isn’t aiming to be forcefully directive right now.

Liquidity Conditions

For those of us watching pricing at the shorter end of the curve, especially in interest rate futures or CNH forwards, this pattern carries weight. With the PBOC not injecting net funds and still anchoring the yuan close to recent fixings, we’re seeing restraint. That restricts some of the previously widening basis spreads. Forward points are likely to remain compressed unless there’s a coordinated shift in either monetary or trade dynamics.

In the weeks to follow, we should treat the small withdrawal as a cue. Liquidity will not be overly flush, but it won’t be squeezed either. Rates at the front-end may hold steady, barring external shocks. There’s now a clearer idea of their tolerance zone—those of us looking ahead may need to factor that steadiness into roll costs or the implied volatility curve. Any sudden price swings out of range on the onshore yuan may face coordinated counteraction via policy tools like reserve ratio tweaks or open market rebalancings.

Price action in shorter swaps might also grow more sensitive to basis risk. If reversal expectations begin to appear, we should be ready to act swiftly—particularly on exposures greater than one month where sensitivity to funding gestures becomes more acute. The strained liquidity net, albeit minor this time, may become a recurring theme in upcoming operations, especially if inflation remains modest and credit demand doesn’t pick up sharply.

We watch the midpoint fix each morning not just as a rate, but as a fairly open signal of where comfort lies. The narrower the deviation from the previous close, the more anchored we can expect intraday pricing to remain. For markets with cross-currency settlement lead times, that stability informs rollover strategies and allows for better calibration of margin expectations.

We remain on alert for any modifications to the repo rate, though none have materialised thus far. That inactivity itself is telling—it hints that broader macro settings have not yet demanded stronger intervention.

The small liquidity withdrawal, when read in context, reiterates that monetary conditions are intended to be supportive but not relaxed. It shapes the probability curve moving forward: we do not yet expect deep cuts nor outsized tightening, but a middle trail where reaction rather than prediction guides strategy.

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