Insights 
VT 
On Friday, the People’s Bank of China set the USD/CNY central rate at 7.0880, slightly up from the previous 7.0864 and differing from the 7.1171 estimate by Reuters.
The People’s Bank of China aims to ensure price and exchange rate stability while promoting economic growth. It also plays a role in implementing financial reforms to advance and open the financial market.
Governance And Operations
The PBoC is owned by the state of the People’s Republic of China and operates under the influence of the Chinese Communist Party Committee Secretary. Currently, Mr. Pan Gongsheng holds the dual roles of governor and party secretary.
The PBoC utilises a range of policy tools distinct from Western practices, including the Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and the Reserve Requirement Ratio. The Loan Prime Rate, China’s benchmark interest rate, impacts loan, mortgage rates, and savings interest.
China permits 19 private banks within its financial system, including significant digital lenders WeBank and MYbank, backed by Tencent and Ant Group, respectively. Since 2014, domestic lenders with private funding can operate in China’s state-dominated financial sector.
Today’s central rate setting is a clear signal of the People’s Bank of China’s intention to manage the yuan’s depreciation. By fixing the USD/CNY rate at 7.0880, significantly stronger than market estimates around 7.1171, the bank is actively pushing back against weakening pressure. This move suggests that betting on a rapid decline in the yuan in the short term carries significant policy risk.
We believe this action is a response to recent mixed economic data and a desire to ensure stability. While China’s Q3 2025 GDP growth came in at a respectable 4.8%, recent export data for September showed a 1.2% year-over-year decline, reflecting slowing global demand. A stable currency helps prevent capital outflows and supports investor confidence during this period of uncertainty.
Economic Implications And Strategies
This strategy is a familiar one, as we saw a similar pattern of stronger-than-expected fixes throughout 2023 when the yuan was under pressure. The PBOC is using its powerful policy tools to guide the market and avoid the kind of volatility that could disrupt its economic growth objectives. For traders, this means the central bank is acting as a powerful counterparty to any significant short-yuan positions.
From a derivatives perspective, this managed stability suggests that implied volatility may be overpriced relative to the likely actual movement of the currency pair. The PBOC’s firm guidance effectively puts a short-term cap on USD/CNY, making strategies like selling out-of-the-money call options potentially attractive. We should expect the pair to remain more range-bound than underlying fundamentals might otherwise suggest.
We must also watch the PBOC’s other policy instruments for clues, as exchange rate management does not happen in a vacuum. The bank has held the one-year Medium-Term Lending Facility (MLF) rate steady for the past two months to balance the need for liquidity with currency stability. Any unexpected cut to the MLF or the Reserve Requirement Ratio (RRR) could signal a policy shift that prioritizes domestic stimulus over the yuan’s strength.
In the coming weeks, the most critical data point will be the daily difference between the PBOC’s fixing and the market’s consensus estimate. A continued pattern of setting a stronger-than-expected rate will confirm this policy of managed stability is still in place. Conversely, if the gap narrows or disappears, it could be the first sign that officials are comfortable allowing more market-driven weakness.
