SHANGHAI (Reuters) – China’s central bank said on Monday it would cut foreign currency reserves that financial institutions must hold, a move seen as aimed at slowing the yuan’s recent depreciation.
According to an online statement, the People’s Bank of China said it will lower the foreign exchange reserve requirement (RRR) from 8% to 6% starting in September 15.
The People’s Bank of China said the reduction was aimed at improving “financial institutions’ ability to use foreign exchange funds.”
The move comes after the yuan recently fell to a two-year low. The yuan has lost 8% of its value against the dollar so far this year on the back of a broadly stronger dollar in global markets and a deepening economic slowdown in China.
The reduction in reserve requirements will increase dollar liquidity. According to the data at the end of July, when the foreign exchange reserves are 19 700 million US dollars, the lower requirement will release about 19 Dollar Billion Dollars.
“It’s not a huge number compared to cross-border income,” said Frances Cheung, rates strategist at OCBC Bank.
“However, the market still pays attention to the signals from the central bank.”
CNY onshore and CNH briefly rebounded 953 points after the PBOC statement and recovered some of its previous losses.
Some traders and analysts said the rate cut was expected, partly as a signal to the market that a rapid devaluation of the yuan would be unwelcome.
“The central bank’s official action to stabilize the yuan has been within market expectations as the yuan’s central parity rate has continued to be stronger than market expectations recently,” said Ken Cheung, chief Asia FX strategist at Mizuho Bank.
The People’s Bank of China has been setting a stronger-than-expected midpoint guidance rate for the past two weeks, which many market participants interpreted as a sign of official efforts to rein in yuan weakness.
JLL Chief Economist Peng Xiaolong (NYSE: JLL ) said Monday’s announcement showed that , the authorities have begun to adopt appropriate policy tools and macro-prudential tools to eliminate excessive RMB volatility.
“It can cool down bets on one-way depreciation of the renminbi and ease the pressure of rapid depreciation of the renminbi,” Pang added.
USD/USD has accelerated its decline since mid-August, despite efforts by authorities to slow the decline, with some forecasting a rally ahead of next month’s politically sensitive party convention Breaking the $7 milestone.
The People’s Bank of China last cut the foreign exchange reserve ratio by 100 basis points in April to control the depreciation of the yuan and reduce the cost of deposits for banks There are dollars.
