The PBoC is tightening FX liquidity by raising reserve requirements to 6% to slow the yuan's appreciation, though analysts at MUFG note the move is intended to moderate, not reverse, the current trend.
The PBoC lifted the FX reserve requirement ratio to 6% from 4%, effective 15 November, after USD/CNY moved toward 6.65. Locking up about USD24 billion in FX liquidity makes it costlier to short the dollar against the yuan, so the pair should find support and the yuan's appreciation should slow. MUFG stresses the aim is to slow, not reverse, the move, which caps the upside.
It raised the FX reserve requirement ratio to 6% from 4%, effective 15 November.
The move locks up roughly USD24 billion in FX liquidity and is meant to slow the yuan's gains, which supports the dollar-yuan pair.
The PBoC's increase of the FX reserve requirement ratio to 6% from 4%, effective 15 November, is aimed at slowing yuan appreciation after USD/CNY approached 6.65. That makes further near-term CNY strength less likely, though MUFG notes the intent is to slow rather than reverse the trend.
The measure is intended to slow the yuan's appreciation rather than reverse it, so it mainly reduces the pace of gains.
The People's Bank of China has increased the foreign exchange reserve requirement ratio from 4% to 6%, effective November 15. This policy shift, which locks up approximately USD 24 billion in liquidity, aims to temper the recent rapid gains of the Chinese yuan as the USD/CNY pair approached the 6.65 level.
The PBoC raised the foreign exchange reserve requirement ratio for financial institutions from 4% to 6%, effective November 15.
By locking up USD 24 billion in liquidity, the move makes it more expensive to short the dollar against the yuan, thereby providing support to the USD/CNY pair and slowing the yuan's recent rally.