CNY and CNH rates are likely to hold steady into year-end. The PBOC is shifting to a more neutral stance as FX risks return to its radar. USD/CNY remains range-bound at 7.10–7.11, while the DXY rebounds into the 99–100 levels. KRW and JPY softness is adding depreciation pressure on the CNY. With the increasing odds of a delayed Fed cut, the negative 2Y and 10Y CGB–UST spreads are widening by 10–20bps over the past month. Against this backdrop, the PBOC have issued RMB30bn and RMB10bn of offshore 3-month and 1-year bills in Hong Kong yesterday respectively. For onshore market, net injections through OMO are staying neutral in November.
However, downside risks persist as we move into 2026. Beijing is likely deepening its anti-involution campaign, which requires further supply-side adjustment. A further contraction in fixed-asset investment could support industrial profits. CPI and PPI are showing early signs of stabilization. Yet, the PBOC is likely maintaining its easing trajectory until data confirms that disinflationary pressure and the resulting elevated real rates have fully eased. We expect another 10bps and 25bps cut in the 1Y LPR by end-2025 and end-2026 respectively. Another 150bps RRR cuts are also on the card over the next 13 months. We see further room for PBOC bond buying. Notably, the central bank’s claims on government debt remain modest at 1.6% of GDP—well below the 6% peak during the GFC.
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