PBOC to raise reserve requirement ratio on foreign exchange deposits by 2 percentage points

The People's Bank of China will raise the reserve requirement ratio on foreign exchange deposits by 2 percentage points, the central bank said. The ratio will be 6 per cent, effective 15 November, according to a statement from the central bank.

The PBOC framed the move as a step to strengthen liquidity management of financial institutions. Raising the ratio requires banks to hold a larger share of their foreign currency deposits in reserves at the central bank.

The shift is expected to tighten onshore foreign-currency liquidity, potentially easing appreciation pressure on the yuan, according to Token Times.

The central bank gave no further detail beyond the effective date and the stated rationale. Whether the ratio moves again, and how the yuan trades once the change takes effect, will be the tests of the move.