China monetary policy and RMB foreign-exchange markets: PBoC signals stronger counter-cyclical support but warns against one-way RMB appreciation

Overview

The report examines the PBoC’s Q3 monetary-policy statement, its implications for China’s near-term policy mix, and the central bank’s warning against herding in RMB foreign-exchange markets. Nomura expects targeted policy-bank financing rather than broad monetary easing, while officials seek to limit excessively rapid RMB appreciation.

Core views

Nomura reads the removal of the phrase “cross-cyclical adjustment” and the call to strengthen counter-cyclical adjustment as a subtle but meaningful shift toward providing more growth support. The change follows worsening domestic capital-expenditure and retail-sales data. However, the report does not interpret the language as a signal of imminent broad monetary easing: the statement did not add a new characterization of policy-rate or reserve-requirement-ratio policy, replaced Q2’s emphasis on policy-rate guidance with a broader commitment to operational-framework reform, and retained the goal for overall financing costs to operate at low levels rather than fall further. Accordingly, Nomura maintains its expectation that the PBoC will not cut either policy rates or the RRR by end-2026. It cites domestic constraints, including banks’ thin net interest margins and the need to strengthen bank capital, alongside recent rate hikes in major developed economies, including the US, which reduce room for Chinese rate cuts. Instead, the report expects policy banks to play a greater near-term role through the planned RMB800bn in new policy-based financing instruments, intended to provide seed capital for infrastructure investment. The “six networks” programme was newly added to the Q3 statement’s structural monetary-policy priorities and is viewed as a key destination for these quotas. The China Development Bank and Export-Import Bank of China had approved more than RMB60bn and RMB22bn, respectively, by early September. If the funds are deployed promptly, Nomura believes credit growth and fixed-asset-investment growth could rebound in Q4. The Q3 statement also introduced a warning against “herding behaviour” and self-reinforcing irrational expectations in FX markets. Nomura links this to concern over overly rapid RMB appreciation. Deputy Governor Lu Lei similarly stated on 10 September that China had neither the need nor the intention to pursue competitive currency devaluation. He argued that trade has become less sensitive to FX moves because of upgraded export products, greater pricing power, wider hedging-tool use, and a higher RMB share in trade settlement. The report traces the RMB’s recent path: USD/CNY briefly reached 7.4 during the early-April 2025 trade-war peak, fell to 7.2 by May, and stayed in a 7.1-7.2 range through November. It then declined from about 7.1 at end-November to 6.8 by end-February after trade tensions eased and China’s annual trade surplus exceeded USD1trn. The PBoC cut the risk reserve requirement on financial institutions’ FX forward sales to 0% from 20% on 27 February 2026, and subsequent developments temporarily pushed USD/CNY back to 6.9. It later returned near 6.8 and most recently fell to around 6.7. The onshore yuan had appreciated 4.1% against the US dollar so far in 2026 after a 4.4% gain in 2025; its trade-weighted basket value had risen 4.6% so far in 2026 after declining 3.4% in the prior year.

Analysis framework

Nomura compares the Q3 MPC statement with its Q2 predecessor, links the wording changes to domestic-growth conditions and monetary-policy constraints, then assesses targeted financing implementation. It also reviews recent USD/CNY movements and official FX communications to explain the warning against herding.

Methodology notes

• Macroeconomics

  Policy-statement comparison and monetary-policy transmission analysis

  The report compares changes in PBoC wording, bank-sector constraints and external rate conditions to assess the likely mix of broad easing and targeted policy-bank support.

Key data

• New policy-based financing instrumentsRMB800bnPlanned tool expected to provide seed capital for infrastructure investment.
• China Development Bank approved quotaMore than RMB60bnApproved by early September.
• Export-Import Bank of China approved quotaMore than RMB22bnApproved by early September.
• Onshore RMB appreciation against USD4.1%Year-to-date in 2026, following a 4.4% gain in 2025.
• RMB trade-weighted basket appreciation4.6%Year-to-date in 2026, following a 3.4% decline in 2025.
• USD/CNY most recent levelAround 6.7Following a further RMB appreciation.

Impact & implications

Nomura expects China’s near-term support to rely on structural financing and policy-bank deployment rather than rate or RRR cuts. Timely use of the financing quota could support Q4 credit and fixed-asset-investment growth, while the PBoC’s FX messaging signals discomfort with an excessively fast RMB appreciation.

Risks

• Sustained weakness in domestic demand may continue to weigh on growth conditions.
• Rapid RMB appreciation and self-reinforcing FX-market expectations are a stated concern for the PBoC.

What to watch

• Deployment speed and allocation of the RMB800bn policy-based financing instruments, particularly toward the “six networks” programme.
• Whether Q4 credit growth and fixed-asset-investment growth rebound as financing funds are spent.
• Further PBoC communication or policy measures aimed at limiting rapid RMB appreciation.