The People’s Bank of China will raise the foreign exchange deposit reserve ratio for local financial institutions to 6% from 4%, effective November 15. The central bank said the change is intended to strengthen institutions’ management of foreign exchange liquidity.
The ratio sets how much foreign currency, including dollars, local institutions must hold in reserve with the PBOC. Raising it is expected to reduce the supply of dollars and increase yuan liquidity, a combination that can weigh on the Chinese currency.
The decision comes after the yuan strengthened to a more than four-year high in October. The currency has risen sharply this year following a series of stronger midpoint fixes set by the central bank. A stronger yuan can put pressure on Chinese exports, a major driver of the country’s economy.
Sources: Investing.com News.