Central bank to raise forex reserve requirement ratio

The People's Bank of China, the central bank, said on Tuesday it will raise the foreign exchange reserve requirement ratio for financial institutions by 2 percentage points to 6 percent from Nov 15, in a move to strengthen the management of forex liquidity.

The adjustment means financial institutions will need to set aside more foreign exchange deposits as reserves with the PBOC, reducing the amount of forex available for lending and trading on the market.

Market analysts said the policy tool is aimed at curbing excessive volatility in the yuan and cooling one-sided sentiment in the foreign exchange market, without signaling a shift in the country’s prudent monetary policy stance. The central bank has stressed that it will keep the yuan’s exchange rate generally stable at a reasonable and balanced level.