CNY: Managed stability as surplus defended – Commerzbank

Commerzbank’s Dr. Henry Hao and Moses Lim highlight how Chinese policymakers are defending China’s large trade surplus while aiming to keep the CNY broadly stable. Authorities are expected to use the 7‑day reverse repo rate, Loan Prime Rates and RRR adjustments, plus open market and structural tools, to offset Middle East-driven cost pressures and maintain a managed, flexible USD/CNY regime.

PBoC tools to steady Chinese Yuan

"Speaking at the China Development Forum, Premier Li Qiang committed to addressing trade frictions during the fragile US-China tariff truce, stating, "We are ready to work with all parties to promote the sound and balanced development of trade.""

"Conversely, People's Bank of China (PBoC) Governor Pan Gongsheng defended the surplus as a net positive that underpins global financial stability through outward investment. Pan attributed current imbalances largely to non-economic distortions, such as the front-loading of shipment."

"This careful messaging underscores China's structural reliance on goods exports to offset sluggish domestic consumption."

"Governor Pan emphasized the central bank's "commitment to ensuring ample liquidity and balancing internal and external equilibria"."

"We expect policymakers to actively deploy their comprehensive monetary policy toolkit, focusing on the 7-day reverse repo rate, which guides the broader Loan Prime Rates (LPR), alongside reserve requirement ratio (RRR) adjustments."

"PBoC may also utilize open market operations, and structural policy tools to complement a fiscal push that marks the fastest start to state spending since 2022."

"Looking ahead, we expect the PBoC to tolerate flexible, market-driven fluctuations while actively deploying macro-prudential tools to curb "herd effects" and prevent one-sided bets against the CNY."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)