China: PBOC hikes RRR for FX deposits by 2pp, signaling discomfort over recent rapid RMB appreciation

Bottom line: This morning (3 November), the PBOC announced a 2pp hike to the reserve requirement ratio for FX deposits, from 4% to 6%, effective 15 November. This likely signals the central bank's increased discomfort with the pace of RMB appreciation over the past two months. A higher reserve requirement ratio would drain FX liquidity onshore, easing CNY appreciation pressures accordingly, while the actual liquidity impact is small compared to monthly FX inflows through goods trade, based on our estimates. We maintain our 12-month USDCNY forecast of 6.40, as the very large trade surplus and solid exporter demand for FX conversion should remain the main drivers of the RMB trends.