Reporter Ouyang Xiaohong
What is the price difference between borrowing money for one day and borrowing money for one year? If a Chinese company borrows RMB to start production today and gets back the Euro payment one year later, how should it calculate its income?
The two questions respectively involve two basic prices in the financial market: interest rate and exchange rate. Interest rate is the time price of funds, and exchange rate is the spatial price of funds. The former is related to how long the funds will be used and how much it costs, while the latter determines how to exchange between different currencies.
Now, the pricing environment for the two prices of RMB has changed one after another.
In the era of AI (artificial intelligence) capital – a delicate moment of drastic changes in the global macroeconomic situation and market fluctuations, the Central Bank of China has frequently taken action. In just three days, three tools were adjusted in succession: On November 2, the main open market operations were shifted from 7-day to overnight, and the short-end policy interest rate was officially “changed”; on the 3rd, it was announced that the foreign exchange deposit reserve ratio would be increased from 4% to 6%, which would be implemented on the 15th; on the 4th, the stock repurchase and holding refinancing interest rate was reduced from 1.25% to 1% to reduce the funding cost of specific capital market support tools.
Each of the three policies has its own focus. The former focuses on improving the interest rate control framework, the middle one targets foreign currency liquidity, and the latter directly supports stock repurchases and increase holdings. The subtext is: How does policy guide prices, and how does the market determine the true cost of a fund?
The adjustment of the interest rate anchor is an institutional change actively promoted by the central bank. In the past, the 7-day reverse repo rate played an important policy reference role. Today, the central bank carries out overnight reverse repurchases at a fixed interest rate of 1.25% every day, and banks declare the amount of funds required; 7-day operations are mainly carried out during the tax period, the end of the month and other times, and different winning rates are formed based on bank quotations.
In layman’s terms, the central bank provides a clearer policy reference for overnight inter-bank funding prices. If you borrow funds with a longer term, you still have to consider market supply and demand, interest rate expectations and risks.
What does this mean for businesses and residents?
Overnight fund prices affect banks’ short-term financing costs and may gradually be transmitted to bond, loan and other markets. Of course, this doesn’t make one-year business loans or residential mortgages change prices overnight. Previously, the 7-day reverse repo interest rate was 1.40%, and now the overnight interest rate is 1.25%. The difference between the two figures is 15 basis points, but they correspond to different maturities. It should not be simply regarded as a comprehensive interest rate cut.
The refinancing interest rate cut on November 4 is aimed at increasing support for the capital market. The central bank lowered the interest rate on stock repurchases and re-lending to banks to 1%, and encouraged banks to provide loans to qualified listed companies and major shareholders for the purpose of repurchasing and increasing stock holdings.当日，A股科技股强势反弹，科创综指涨幅近10%。
On the exchange rate side, changes come more from market pricing forces. In the past, the trend of the U.S. dollar and the interest rate differential between China and the United States were important references for judging the RMB exchange rate. However, since the beginning of this year, foreign exchange settlement by domestic companies has promoted the strengthening of the renminbi. After an enterprise receives payment in foreign currency, should it continue to hold the foreign currency or convert it into RMB? Which type of assets are cross-border funds more willing to allocate? These seemingly scattered choices come together to form new market supply and demand.
The continued appreciation of the RMB may prompt some companies to speed up foreign exchange settlement, further strengthening expectations of appreciation. On November 3, the central bank raised the foreign exchange deposit reserve ratio based on this market background. It regulates the foreign currency liquidity available to the banking system and also sends a signal to prevent excessive strengthening of unilateral expectations.
This does not mean that the RMB exchange rate system has officially “changed its anchor”. What has changed is the impact and weight of different market factors on exchange rate pricing. The dollar and interest rate differentials are still important, but they are no longer sufficient to explain the entire market.
The anchor of interest rates is actively adjusted, and the pricing power of exchange rates changes with the market. The two are different in nature, but they will eventually enter the operating accounts of Chinese companies.
A manufacturing company that exports equipment to Europe borrowed RMB today to purchase raw materials and pay wages, but received payment in Euros a year later. The interest on the loan will be calculated from today, and how much the euro can be converted into RMB will depend on the exchange rate. Enterprises can lock in the exchange price in advance through forward settlement, but they also need to consider the corresponding transaction and risk management costs.
Exchange rate and interest rate meet in the same business activity.
For enterprises, what matters is not the rise or fall of a certain interest rate or exchange rate figure, but how much profit can be left after deducting production, financing and exchange costs from an order. Even if the price of funds decreases, companies may still be reluctant to expand investment if there are insufficient orders and poor profit expectations; RMB appreciation will help reduce some import costs, but it may also compress the income of export companies calculated in RMB.
Changes in capital prices will affect companies’ investment willingness, operating returns and labor demand. This is also about the lives of ordinary people. Loan costs and financial management income are affected by the interest rate environment; RMB appreciation may reduce exchange costs for studying abroad, traveling and cross-border consumption. Different families and businesses are affected in different directions and degrees.
The deeper background is the expansion of the cross-border use of RMB. For example, whether overseas institutions are willing to hold RMB assets depends not only on the income, but also on whether financing can be facilitated when funds are needed, and whether it is easy to trade and hedge exchange rate risks.
It can be seen that the ability of a currency to be used internationally will ultimately be tested by market depth, liquidity and real transaction demand.
The anchor of interest rates is actively adjusted by policy, and exchange rate prices always respond to changing market supply and demand. How the two interact with each other is not only a technical issue in the financial market, but also a practical issue in how the Chinese economy can allocate funds more effectively.
Related Reading
- World, line up to sell goods to China!2026-11-12
- Ni Runfeng, the “King of Color TV”, passed away. From a workshop technician to the head of a state-owned enterprise, his ups and downs in half a life defined an era of home appliances.2026-11-12
- Original “Fearless” Wang Jianlin regains control of Wanda Business Management, and his net worth has evaporated by 200 billion in ten years2026-11-12
- Original: The middle-class people are crazy about grabbing Archaeopteryx in Sam2026-11-12
- There is no more double 11 in the world, leaving businesses miserable2026-11-11
