China to manage CNH liquidity, PBoC to issue CNY 40bln of 6-month bills in Hong Kong

The People's Bank of China (PBoC) has decided to issue CNY 40 billion of 182-day central bank bills in Hong Kong on December 22, marking a broader effort to manage the pace of recent CNY strength. Unlike previous instances of offshore bill issuance used to combat depreciation pressure, the yuan is currently maintaining a strong position. The PBoC has repeatedly set the daily USD/CNY fixing higher than market models would suggest, indicating that authorities are more focused on slowing the yuan's ascent rather than preventing downside risks. The issuance, particularly with a 182-day tenor, aims to fine-tune the offshore liquidity conditions. Notably, this move does not indicate a shift towards broader monetary tightening. Onshore liquidity continues to be managed separately through reverse repos. The Hong Kong bill issuance reflects a preference for targeted measures addressing specific market imbalances. Overall, the PBoC is strategically managing currency risk, carefully balancing between avoiding excessive weakness while not allowing rapid appreciation that could impact export competitiveness.