China Cuts Forex Reserve Ratio as Yuan Weakens to 17-Month Low

Source: Bloomberg

The People’s Bank of China has cut down its foreign currency holdings reserves following the significant depreciation of the yuan against the greenback. MCHI is down 2.91%, while KWEB is down 1.43%.

• The PBOC said the reserve requirement for foreign currency holdings will be slashed to 8% starting May 15 from the current level of 9%.
• The decline seeks to increase the capabilities of banks in the use of forex funds, and assist in liquidity management.
• The move is expected to boost the dollar supply, along with other currencies onshore. It is also seen to ease the weakness of the yuan.
• The cut comes after the requirement was hiked twice in 2021, as the PBOC sought to limit the strong performance of the yuan.
• The yuan has since fallen to the lowest level against the US dollar in 17 months, following the resurgence of COVID-19 cases in the country.