Bank of America (BofA) has seen a significant increase in repo rates during the week of January 13 due to the increase in income caused by tax payments and the small amount of money issued by the People’s Bank of China (PBoC).

Financial stress was more pronounced on January 16, the day after the tax deadline, with rates DR007 and R007 reaching 2.34% and 4.19%, respectively.

The PBoC maintained its stance of protecting the stability of the exchange rate, which led to the Renminbi (RMB) crisis which was also felt in the offshore market.

On January 9, the central bank announced that it will issue 60 billion RMB of 6-month bills in Hong Kong, a significant increase from the previous release. The 3.4% coupon rate was significantly higher than the December issue, reflecting the stress on CNH’s cash flow and declining business demand.

Foreign currency transactions with bank customers in December fell sharply to USD 10.5 billion, the first reading since July 2024. The main change of the previous month was a significant increase in the value of the USD for business transactions. Reports also suggest that exporters have bought USD through futures to hedge against price risks in recent weeks, leading to further increases in futures.

On January 13, the PBoC increased the main margin from 1.50 to 1.75. This allows domestic companies and financial institutions (FIs) to do more margin lending.

Considering the high interest rates between China and overseas, BofA believes that this is a symbolic signal for the PBoC to confirm the market’s optimism in the foreign exchange market.

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