China’s central bank said on Monday that it will raise the FX reserve requirement ratio for financial institutions to 7% from 5%, effective on June 15.
The People’s Bank of China (PBOC) said the move was meant to “strengthen FX liquidity management at financial institutions”, according to a statement published on its website.
That rise in reserve requirements would make it more expensive for banks to hold dollars and other foreign currencies. Dollar/yuan swap points fell to price indicating a firmer yuan in the near term as market participants braced for companies and banks to reduce dollar holdings.
As per latest data, banks in China hold about $1 trillion in foreign currency deposits.
The last time the PBOC raised the reserve requirement was in 2007, from 3%.