PBOC employs volatile renminbi fixing to manage Iran war fallout
The move signals that China is encouraging two-way fluctuations rather than backing a single direction
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[BEIJING] China’s central bank is signalling an increased tolerance for renminbi flexibility, a sign of confidence that it can insulate the currency from the market turmoil triggered by the Iran war.
The 30-day volatility of the renminbi’s daily reference rate set by the People’s Bank of China (PBOC) climbed to its highest in the second week of March since December 2024, data compiled by Bloomberg revealed.
Increased volatility in the daily fixing – the midpoint that limits the currency’s onshore moves to a 2 per cent band – signals that China is encouraging two-way fluctuations rather than backing a single direction for the currency.
Fiona Lim, a strategist at Maybank, said: “The PBOC is now comfortable with allowing the markets to determine the renminbi’s direction at this point. That would inevitably introduce some volatility in the fix.”
Citing the fluidity of the Iran war, she added: “It is harder for foreign-exchange bets to snowball in either direction in this environment.”
After touching its strongest level in nearly three years in late February, the renminbi has shifted into range-bound territory, pivoting from a one-way rally as markets digested the latest geopolitical shocks.
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It slipped around 0.1 per cent in March amid the Middle East war, posting smaller losses than other Asian currencies, due to policy support as well as the nation’s robust exports.
China emerges as unlikely haven
The PBOC set renminbi fixing at 6.89 yuan (S$1.28) for each US dollar on Wednesday, its strongest level since 2023. It traded around the level of 6.87 yuan.
Beyond daily fixes, Beijing is signalling a broader commitment to stability.
PBOC governor Pan Gongsheng reiterated on Mar 6 that China is not seeking a renminbi devaluation to gain a trade advantage, a move intended to quell speculation of an opportunistic slide of the currency as the US dollar strengthens.
Analysts expect renminbi sentiment to hold up ahead of US President Donald Trump’s visit to Beijing later in March, as policymakers prioritise a stable currency backdrop to smooth over diplomatic discussions.
Eddie Cheung, a strategist at Credit Agricole Corporate and Investment Banking, said the currency remains a relative haven on the back of resilience in China’s fundamentals.
With the National People’s Congress still ongoing and a meeting between Trump and his Chinese counterpart Xi Jinping expected at the end of March, he said: “We don’t see any reason to rock the boat at this time.” BLOOMBERG
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