PBoC raises FX deposit reserve ratio to 6% to slow yuan gains

The People’s Bank of China has raised its foreign-currency deposit reserve requirement ratio by 2 percentage points, from 4 percent to 6 percent, effective 15 November. The move, announced on Tuesday 3 November, is aimed at slowing the appreciation of the yuan.

The central bank said adjustments to the FC RRR are a primary tool for managing domestic foreign-currency liquidity. It also said the tool helps stabilise the value of the yuan.

Analysts keep a cautious view

UOB analysts said they had recently moved to a cautious medium-term outlook on the yuan. They pointed to a widening interest rate differential with the US dollar as the reason.

The analysts said the reserve hike reinforced their view of a modest recovery in USD/CNY from current levels. By our market data, USD/CNH stood at 6.6728 as of 02:07 GMT on 4 November.

Forecast update due next week

UOB will update its USD/CNY forecasts in its FX and Interest Rate Monthly Report on 6 November.

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Source: People's Bank of China  |  Data: Swissquote