China cuts banks’ forex reserve requirement as yuan hits 2-year low against US dollar
- People’s Bank of China warns market not to bet against the yuan, as it nears the psychologically significant point of 7 per US dollar
- Beijing says it has the ‘strength to support the currency’, and market watchers speculate about an official effort to rein in excess yuan weakness
China has announced a cut to the foreign exchange reserves that banks must set aside, sending “a strong signal” to stem the recent depreciation of the yuan as the central bank warns the market not to bet against the currency.
The People’s Bank of China said it would cut the foreign exchange reserve requirement ratio to 6 per cent from 8 per cent, effective September 15. The move is aimed at boosting dollar liquidity and improving the ability of financial institutions to use foreign exchange funds.
Still, as the yuan reached its weakest point against the US dollar in more than two years on Monday, China’s central bank downplayed concerns.
In the onshore market, the yuan closed at 6.9366 against the US dollar on Monday, weaker than Friday’s close of 6.9003.
We have the strength to support the [yuan]. I don’t think anything [disastrous] will happen, and we will not allow it to happen
Liu Guoqiang, deputy governor of the People’s Bank of China (PBOC), said at a press conference on Monday that the yuan has shown more flexibility, and that two-way fluctuations over the short term are normal. But in the long run, he reassured, the yuan will maintain its strength as a global currency.