China Local Markets Weekly: PBoC joins the debate on CNY valuation; Lower 2026YE USD/CNY target to 6.60

PBoC has formally entered the debate on CNY valuation. In a rare move, the PBoC published a bilingual commentary outlining its framework on the RMB exchange rate and pushing back against the prevailing narrative around CNY undervaluation. While we broadly agree with most of its arguments, we hold some reservations. Exchange rate regime and FX market management: while market forces now play a larger role, the currency market remains tightly managed, China's capital account is still largely closed, and CNY volatility remains structurally lower than most G10 and EM currencies. No well-established framework for evaluating exchange rates: REER alone provides an incomplete measure;