PBoC adjusts policy amid rising USD demand

The People's Bank of China (PBoC) responded to increasing demand for the US dollar by adjusting its cross-border macroprudential parameter.

The central bank's decision to raise the parameter from 1.50 to 1.75 allows domestic corporations and financial institutions to engage in more cross-border borrowing.

The adjustment came as the foreign exchange settlement balance for banks' clients showed a deficit of $10.5 billion, marking the first negative reading since July 2024. This deficit contrasts with the previous month's figures. The rise in demand for the US dollar was particularly noticeable in service trade transactions.

Recent weeks have seen domestic importers actively purchasing US dollars through foreign exchange forwards. This move is a strategy to hedge against potential risks associated with tariffs, which has contributed to an upward push on forward points.

The PBoC's policy change on January 13 reflects efforts to manage market expectations regarding foreign exchange rates.

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Source: Investing.com