Core Viewpoint - The recent market perspective suggests that the appreciation of the RMB and increased foreign exchange settlement by enterprises could lead to bank balance sheet expansion, thereby aiding interbank liquidity. However, the reality is that while the RMB appreciates and enterprises increase settlement, the central bank does not purchase foreign exchange, which may tighten interbank liquidity instead [1][6]. Group 1: Impact of RMB Appreciation on Interbank Liquidity - The appreciation of the RMB and increased foreign exchange settlement does not automatically translate to an increase in base currency supply, as the central bank's foreign exchange reserves have not increased despite a significant surplus in bank foreign exchange settlements [2][8]. - In December 2025, the bank's foreign exchange settlement surplus reached a historical high of 999 billion USD, with the settlement rate rising by 7 percentage points to 69%, indicating strong market sentiment towards the RMB [7][9]. - The process of foreign exchange settlement involves converting domestic RMB assets into foreign currency assets, which consumes internal RMB reserves, thus not necessarily leading to liquidity expansion [10]. Group 2: Central Bank's Role in Liquidity Management - The key factor for whether interbank liquidity will tighten alongside RMB appreciation in 2026 lies in the central bank's willingness to increase base currency supply through various measures such as reverse repos, MLF, and bond purchases [4][11]. - The central bank's actions to maintain liquidity are crucial for stabilizing the RMB exchange rate and supporting economic growth, especially in light of government bond issuance [11][12]. - The central bank's ability to smooth out funding fluctuations has been enhanced, and it is expected to continue providing liquidity support, which may keep interbank rates low [12].

Report Industry Investment Rating No information provided. Core Viewpoints of the Report - The appreciation of the RMB and increased corporate foreign exchange settlement may lead to a tightening pressure on inter - bank liquidity if the central bank does not purchase foreign exchange and inject base money. However, whether inter - bank funds will tighten in 2026 depends on whether the central bank actively increases the supply of base money [4][6]. - The surplus in bank foreign exchange settlement and sales does not necessarily translate into an increase in the central bank's foreign exchange holdings on its balance sheet, nor does it equal an increase in base money supply. The excess foreign exchange positions from the surplus in bank foreign exchange settlement and sales remain on commercial banks' balance sheets [4][8]. - The expansion of a bank's balance sheet due to foreign exchange settlement does not simply mean loose liquidity. Without an increase in base money, an increase in deposits requires more legal reserves, leading to a decrease in excess reserves [4][14]. - The central bank may need to maintain loose inter - bank liquidity to stabilize the exchange rate, support economic growth, and cooperate with fiscal bond issuance. Although there are flaws in the reasoning that RMB appreciation and increased corporate foreign exchange settlement help loosen inter - bank liquidity, the conclusion may be correct [4][15]. Summary by Relevant Catalog 1. How RMB Appreciation and Foreign Exchange Settlement Affect Inter - bank Liquidity - **1.1 Bank Foreign Exchange Settlement and Sales Surplus Has Not Converted into Incremental Base Money** - In December 2025, the on - shore RMB exchange rate broke through 7, and the bank's customer foreign exchange settlement and sales surplus reached a record high of 99.9 billion US dollars. The settlement rate rose by 7 percentage points to 69%, and the purchase rate fell by 4 percentage points to 61%, indicating a strong bullish sentiment towards the RMB at the end of 2025. In January 2026, the settlement rate is likely to remain high [7]. - Historically, the central bank mainly relied on foreign exchange holdings to passively inject base money. Currently, although there is a large surplus in bank foreign exchange settlement and sales, the foreign exchange remains on commercial banks' balance sheets instead of being transferred to the central bank. In December 2025, the central bank's foreign exchange holdings decreased by 2.7 billion RMB month - on - month, while commercial banks' foreign assets increased by 595 billion RMB month - on - month. After considering the shrinkage of foreign assets denominated in RMB due to RMB appreciation, it can basically correspond to the surplus in bank foreign exchange settlement and sales [8][13]. - **1.2 The Expansion of a Bank's Balance Sheet Due to Foreign Exchange Settlement Does Not Simply Equal Loose Liquidity** - The impact of bank foreign exchange settlement on its balance sheet can be divided into two steps. First, the domestic assets denominated in RMB (such as excess reserves) on the asset side are converted into foreign - currency - denominated foreign assets, which consumes RMB reserves on the balance sheet without changing the scale of the balance sheet. Second, incremental deposits are formed as most of the RMB funds obtained by customers from foreign exchange settlement are deposited in domestic commercial banks, which is the process of bank balance - sheet expansion. - Without an increase in base money, an increase in deposits requires more legal reserves, resulting in a decrease in excess reserves. Some market analyses misunderstand the relationship between bank balance - sheet expansion and inter - bank liquidity [14]. 2. The Central Bank Actively Increases Investment, and Inter - bank Liquidity Remains Stable - Whether inter - bank funds will tighten in 2026 when the RMB continues to appreciate depends on whether the central bank actively increases investment to support funds. The central bank may need to maintain loose inter - bank liquidity to stabilize the exchange rate, support economic growth, and cooperate with fiscal bond issuance [15]. - In terms of easing the RMB appreciation pace, the central bank can increase the supply of base money (through outright purchases, MLF, treasury bond trading, and reserve requirement ratio cuts) to keep inter - bank liquidity loose and guide the decline of capital interest rates, thereby alleviating the RMB appreciation expectation. In terms of cooperating with fiscal bond issuance, the central bank first maintains loose liquidity to hedge the liquidity gap caused by government bond issuance and then guides the primary issuance cost of fiscal bonds by buying treasury bonds [15]. - In 2025, the seasonal fluctuations of inter - bank funds have been significantly weakened. The central bank's ability to smooth capital fluctuations is not a problem, and the key lies in its willingness to support funds. The central bank's actions such as a total investment of 100 billion through outright reverse repurchase and MLF in January and increased OMO investment during the six - month window period of outright investment maturity show its support for inter - bank liquidity. After the benchmark interest rate is anchored to the overnight interest rate, the central DR001 may remain below 1.4% in the long term [19].