After the USD index broke through 107, the offshore RMB returned to 7.25. The central bank once again mentioned exchange rate flexibility, with tolerance for volatility possibly increasing.
① The US dollar index rose and broke through the key level of 107. The offshore renminbi against the US dollar once again reached the 7.25 level, last time was at the end of July. ② The head of the International Department of the People's Bank of China stated that he insists on the decisive role of the market in the formation of exchange rates, maintains the flexibility of exchange rates, and strengthens expectation guidance. The tolerance of management for fluctuations in the renminbi exchange rate may be increasing. The market generally believes that 7.30 is the recent resistance level.
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The central bank today conducted a 981 billion yuan reverse repurchase operation for 7 days, with short-term fluctuations in liquidity being controllable, and the market expects a possible reserve requirement ratio cut in November.
①Today, 12.2 billion yuan reverse repos will mature, in addition to 1450 billion yuan MLF and 80 billion yuan of treasury cash deposits maturing. The central bank conducted a 981 billion yuan 7-day reverse repo operation. Industry insiders believe that under the new framework of the central bank, there may be a reserve requirement ratio cut once this year, possibly as early as November.
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Over 1.5 trillion funds will mature this week, and the market is once again calling for reserve requirement ratio cuts and interest rate cuts. Will the reserve requirement ratio be cut in late November to lower interest rates early next year?
1. Mid-term interest rate cuts are subject to dual constraints of exchange rates and net interest margins; it is more feasible to reduce the reserve requirement ratio in the short term, and it is expected to be announced in late November and implemented in early December. 2. To maintain flexibility, it is necessary to retain the possibility of offsetting the additional tariffs imposed by the United States through devaluation. 3. The best window for further interest rate cuts in China is expected to be before Q1 of 2025.