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PBOC Cuts Banks’ Foreign Exchange Reserve Ratio to Support Yuan

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a businessman sitting in a desk showing a chinese yuan or japanese yen sign in his hand

China moves swiftly to restrict the decline in the yuan by cutting the amount of money that the banks need to hold in reserve for their foreign exchange holdings.

Source: Bloomberg

CSI 300 Index down -4.94%, CNY USD down -0.91%

The move emerged after the yuan fell to the lowest level against the dollar in 17 months in response to a small but growing Covid-19 outbreak in Beijing.

The People’s Bank of China stated that financial institutions would be required to hold 8% of their foreign exchange in reserve beginning May 15, lower than the current level of 9%.

The cut is focused on expanding banks’ capabilities of forex fund use and will promote liquidity management. The adjustment will lead to an increase in the supply of dollars and other currencies locally and ease the yuan’s weakness.

The Chinese yuan has been performing worse against the dollar among Asian peers in the past five days with a 3% loss, in comparison with its outperformance as the best regional currency gainer in the last two years.

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