PBOC Credit Fix & LPR Hold Boost Yuan Strength Now

PBOC Credit Fix & LPR Hold Boost Yuan Strength Now

Last week delivered several concrete developments that moved the Chinese yuan (CNY) in measurable ways: the People’s Bank of China (PBOC) implemented a one‑time credit repair initiative, the benchmark loan prime rates (LPRs) were left unchanged, onshore fixing and market rates recorded modest appreciation, and yuan‑denominated overseas lending continued its upward trajectory. These events tightened the immediate policy backdrop for traders and corporate treasurers, providing clearer signals about near‑term CNY direction.

Policy Actions That Directly Affected CNY

PBOC one‑time credit repair

On December 22 the PBOC and related authorities announced a limited credit repair measure aimed at clearing small overdue records. Borrowers who repay overdue amounts up to 10,000 yuan by March 31, 2026, can have those delinquencies removed from personal credit files. The intent is practical: improve borrowers’ access to credit and unblock consumption and small‑business lending channels. For FX, the measure reduces a tail risk to domestic liquidity and supports sentiment toward the onshore yuan.

LPRs held steady — signaling conservative stability

The central bank left the 1‑year and 5‑year LPRs unchanged (1‑year at 3.00%, 5‑year at 3.50%) for the seventh month running. Keeping borrowing costs stable reduces volatility in funding markets and signals that the PBOC is prioritizing steady recovery rather than aggressive easing — a stance that helps limit pressure for further CNY depreciation.

Exchange‑Rate Data and Market Reaction

Onshore fixing and spot moves

PBOC midpoint fixings in mid‑December were broadly steady, while onshore USD/CNY traded lower into the 7.03 area by December 22, reflecting modest yuan appreciation versus earlier December levels. Interbank trading showed incremental strength rather than a sharp trend change, consistent with the PBOC’s calibrated support measures.

Mid‑market and retail rates

Retail and mid‑market quotes tracked a narrow band over the week. Mid‑market USD/CNY (or USD per 1 CNY equivalents) ranged in a tight corridor, with only small percentage moves, reinforcing the impression of a firm but controlled appreciation. For hedgers and corporates, this meant limited short‑term repricing risk but a need to watch for sudden CNH‑CNY spread moves if offshore flows accelerate.

Yuan Internationalization: Debt Issuance and Offshore Lending

Separately, data showed continued expansion of yuan‑denominated lending offshore. Overseas bank lending in yuan has grown materially over recent years and surged again, signaling stronger international demand for CNY funding. At the same time, dollar loan volumes have declined as borrowers increasingly access yuan financing. This structural shift bolsters medium‑term demand for the currency and reduces one channel of depreciation pressure tied to dollar funding shortages.

Practical Implications for Forex Traders and Treasuries

• Short‑term bias: Expect modest CNY strength while the PBOC maintains a steady policy tone and implements targeted liquidity measures.
• Watchlist: Monitor PBOC midpoint fixings, the CNH‑CNY spread (offshore vs onshore), property‑sector data and flows into yuan bond markets — any abrupt change could trigger rapid repricing.
• Hedging: Corporates should consider layering fx hedges rather than chasing spot moves; limited upside for a quick depreciation suggests selective use of collars or phased forwards.
• Yield and funding: Growing offshore yuan issuance creates more on‑ramp liquidity for borrowers and may compress term premia in both onshore and offshore funding markets.

Conclusion

Last week’s developments provided concrete, non‑speculative support for the yuan: a focused PBOC credit repair scheme, steady LPRs and continued expansion of yuan lending offshore combined to underpin demand and reduce downside pressure. For traders, the environment favors a cautiously bullish view on CNY unless forthcoming data or policy statements shift the stance. Close attention to PBOC fixes, CNH‑CNY spreads and domestic credit indicators will be decisive for near‑term positioning.

Data points referenced reflect December policy announcements and exchange‑rate observations from the same week.