The People’s Bank of China (PBoC) responded to increasing demand for the US dollar by adjusting its cross-border macroprudential parameters.
The central bank’s decision to increase the parameter from 1.50 to 1.75 enables domestic corporations and financial institutions to borrow more cross-border.
The adjustment came as the foreign currency settlement balance for bank customers showed a shortfall of $10.5 billion, the first negative reading since July 2024. That deficit contrasted with figures from the previous month. The increase in demand for the US dollar was particularly noticeable in trade in services.
In recent weeks, domestic importers have been actively buying US dollars through currency forwards. The move is a strategy to hedge against potential risks associated with tariffs, which contributed to the upward push on forward points.
The PBoC’s January 13 policy change reflects efforts to manage market expectations about exchange rates.
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