Insights 
VT 
The People’s Bank of China (PBoC) set the USD/CNY central rate at 7.0885 for Tuesday, a slight increase from the previous rate of 7.0867 and below the Reuters estimate of 7.1226. The PBoC aims to maintain price and exchange rate stability while promoting economic growth and financial market development in China.
The PBoC is owned by the state of the People’s Republic of China and is influenced by the Chinese Communist Party Committee Secretary, not the governor. The primary policy tools used by the PBoC include the seven-day Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and Reserve Requirement Ratio.
Loan Prime Rate Influence
China uses the Loan Prime Rate as its benchmark interest rate, influencing loan and mortgage rates and savings interest. Adjustments to this rate also affect the exchange rates of the Chinese Renminbi.
China allows private banks, with 19 currently operating, although they form a small part of the financial system. Notable private banks are WeBank and MYbank, supported by tech companies Tencent and Ant Group. Since 2014, private funds have been permitted to fully capitalise domestic lenders within the state’s financial industry.
The central bank’s decision to set the yuan’s reference rate significantly stronger than market expectations is a clear signal. We see this as an official move to prevent rapid currency depreciation, despite underlying economic pressures. This tells us that policy goals are currently outweighing market forces.
This strong fixing comes at a time when recent data for October 2025 showed exports contracting by 3.5% year-on-year, reviving concerns we saw back in 2023 about sluggish global demand. This weak economic data is exactly why the market anticipated a much weaker yuan. The People’s Bank of China is therefore actively leaning against the prevailing sentiment to ensure stability.
Opportunities for Traders
For derivative traders, this creates an environment where spot price movement may be limited in the immediate future. This suggests that selling short-term options volatility on USD/CNH could be a prudent strategy, as the central bank is likely to keep the currency within a managed range. We saw a similar pattern of intervention throughout late 2024 when the bank defended the currency against speculative pressure.
However, the fundamental economic picture, including Q3 2025 GDP growth that came in slightly below target at 4.8%, points to longer-term weakness. This suggests that while spot is controlled, longer-dated forwards might present an opportunity to position for an eventual, managed depreciation. We should consider that the central bank cannot fight gravity forever if the economic data does not improve.
We must also watch for any upcoming adjustments to key policy rates like the Loan Prime Rate (LPR). Given the weak export and growth figures, pressure is building for a rate cut to stimulate the economy. Any such move would increase the downward pressure on the yuan, making the bank’s current battle to hold the line even more challenging.
