PBOC Reduces Foreign Exchange Deposit Ratio for Banks
The PBOC (People's Bank of China) has announced, starting from 15 May, the forex deposit reserve ratio for Chinese financial institutions will fall 100 basis point from 9 percent to 8 percent.
The move is aimed at "increasing the ability of financial institutions to make use of foreign exchange funds" and help them manage liquidity.
It is also aimed at slowing the depreciation of the yuan, which has recently fallen to a one-year low against the dollar on concerns over a worsening economic growth outlook caused by strict Covid-19 lockdowns in Shanghai and other major cities.
In December 2021, the PBOC raised the foreign exchange reserve ratio for Chinese financial institutions by 200 basis points to contain a rapidly appreciating yuan at the time.
That move coincided with a PBOC decision to reduce the RRR (reserve requirement ratio) for banks by 50 basis points to a weighted average of 8.4 percent – potentially freeing up CNY 1.2 trillion in long-term funds.
The two moves suggest that Chinese authorities are concerned about growth prospects in 2022 as global markets continue to face uncertainty relating to the pandemic.
Source: Regulation Asia
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