MNI BRIEF: PBOC Hikes Risk RRR On FX Forwards As Yuan Weakens

The People’s Bank of China hiked the risk reserve requirement ratio on foreign exchange forward sales on Monday to curb the sharp drop in the yuan, which has fallen to its lowest level against the U.S. dollar since May 2020.

The central bank will impose a 20% risk RRR on banks selling forex in the forwards market, effective on Sep 28, in a bid to “stabilize expectations in the forex market and enhance macro prudential management”, according to the PBOC’s website.

The PBOC set the CNY fixing at 7.0298, the weakest since the early of July 2020 but 793 pips stronger than the 7.1091 expected in a Bloomberg survey. CNH jumped over 300 pips in response to the PBOC’s announcement, while CNY broke through 7.15 - the weakest in two years.

Currency traders and analysts are closely watching 7.2 as a key level, which would be the highest since 2008 should the dollar continue its rally. (See: MNI: PBOC Response May Be Needed As Yuan Breaches 7 - Analysts)