US dollar-yuan exchange rate: China ups forex deposit reserve requirement ratio in bid to curb currency rally
- The People’s Bank of China (PBOC) will raise the reserve requirement ratio for banks from 7 per cent to 9 per cent effective from Wednesday next week
- The offshore yuan weakened following the announcement, dropping by as many as 200 basis points to 6.3680 against the US dollar
China’s central bank announced late on Thursday that it will raise the reserve requirement ratio for banks’ foreign exchange deposits for the second time this year in Beijing’s latest move to curb the yuan’s rally against the US dollar.
The People’s Bank of China (PBOC) said it will increase the ratio from 7 per cent to 9 per cent from Wednesday next week “to strengthen foreign exchange liquidity management of financial institutions”.
The offshore yuan weakened following the PBOC’s announcement on Thursday evening, dropping by as many as 200 basis points to 6.3680 against the US dollar.
The central bank’s move is to change one-sided expectations
“The yuan has strengthened quickly against the US dollar and a basket of currencies recently. Market expectations of further appreciation have also strengthened. The central bank’s move is to change one-sided expectations,” said Ding Shuang, head of Greater China economic research at Standard Chartered Bank in Hong Kong.
The previous PBOC increase in June came when the yuan hit a record high against the US dollar, following warnings by Chinese regulators about the risks of hot money flows.
