How did the central bank’s move change Nomura’s assessment?

  • The central bank announced that, effective 15 November, it would raise the foreign-exchange reserve requirement ratio for financial institutions by 2 percentage points to 6%. Nomura believes this signals policymakers’ discomfort with the renminbi’s recent rapid appreciation.
  • From 1 October 2026 through the close on 2 November, the renminbi appreciated against the US dollar at an annualized rate of approximately 12%. Nomura believes policy may allow appreciation to continue, but at a slower annualized rate of around 10%.
  • Nomura lowered its confidence in shorting the US dollar against the offshore renminbi from level 5 to level 4 and revised its year-end USD/offshore renminbi target from 6.50 to 6.55; under its confidence scale, level 4 corresponds to holding two-thirds of the target position.

Why does Nomura remain positive on the renminbi’s medium-term outlook?

  • Nomura expects the seasonal increase in the trade surplus toward year-end to drive conversion of trade-related foreign-exchange receipts into renminbi; it also believes that factors including the renminbi’s undervaluation, its internationalization and potential US dollar weakness are favorable for the currency.
  • By the bank’s calculations, based on financial institutions’ foreign-currency deposits of 1.199 trillion US dollars at the end of September 2026, a 2-percentage-point increase in the reserve requirement corresponds to approximately 24 billion US dollars; in the preceding three months, trade-related foreign-exchange conversion in China averaged approximately 74.5 billion US dollars a month after adjusting for settlements in renminbi.
  • Historical experience also underpins Nomura’s view that the impact of intervention may be limited: after two increases in the foreign-exchange reserve requirement in 2021, the offshore renminbi fell by an average of approximately 0.4% against the US dollar on the immediately following trading days; the renminbi then remained broadly stable against the CFETS currency basket index for about a month before resuming its appreciation.

What policy responses could change this path?

  • Nomura noted that the USD/CNY central parity rate on 3 November sent no clear signal of opposition to renminbi appreciation; the bank will continue to monitor the fixing, onshore and offshore spot-market trading, and whether officials criticize the pace of appreciation.
  • If appreciation pressure on the renminbi strengthens markedly again, the central bank may raise the foreign-exchange reserve requirement once more or take other measures to adjust onshore foreign-exchange supply and demand. Nomura believes the medium-term appreciation trend will resume only if additional measures in the near term are limited.