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MNI BRIEF: As Yuan Slides, PBOC Cuts Forex RRR To 8%

The People's Bank of China cut reserve ratio requirements for financial institutions on foreign exchange deposits from 9% to 8% on Monday, effectively giving firms an increased capacity to use their balance sheet to convert currency holdings into yuan.

The move by the central bank, effective from May 15, was announced the same day a previously-announced 25-basis-point cut in banks' overall reserve requirements came into effect. It should reduce the need for commercial banks to hold foreign currency, potentially easing demand for U.S. dollars and helping to steady the yuan, which hit an intraday high of 6.6092 earlier on Monday in offshore trade. It recovered to 6.5717 following the PBOC's announcement.

The PBOC last tweaked the forex RRR in December 2021, when it increased the ratio by two percentage points to 9% from 7%, as the pair traded close to multi-year lows around 6.35.

Offshore dollar-yuan rate over last 30 days

Source: Bloomberg

MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
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MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
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