PBOC raises risk reserve for FX forward sales to 20%, cut yuan’s fixing to weakest since Jul 2020, injects net 133 bn yuan in open market operation
POLICY & REGULATION
PBOC raises risk reserve for FX forward sales to 20%, cut yuan’s fixing to weakest since Jul 2020, injects net 133 bn yuan in open market operation
POLICY & REGULATION

PBOC raises risk reserve for FX forward sales to 20%, cut yuan’s fixing to weakest since Jul 2020, injects net 133 bn yuan in open market operation

 

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The People’s Bank of China (PBOC) will raise the foreign exchange risk reserve requirement ratio for FX forward sales to 20% from current zero, effective from September 28, in order to stabilize expectation in the foreign exchange market and strengthen the macro prudential management, the central bank said on Monday morning.

The change of the ratio means financial institutions will be required to set aside 20% of the previous month’s yuan forwards settlement amount as foreign exchange risk reserves.

The onshore yuan strengthened by as much as about 300 pips to hit 7.1311 per US dollar on Monday morning after the PBOC announced the move, before paring gains to about 130 pips to trade at 7.1527 as of 9:45 am HK time.

The PBOC also slashed the yuan’s daily fixing by 378 pips to 7.0298 per US dollar on Monday, the weakest level since July 2020 and the biggest one-day cut since June 2022, compared to a fixing of 6.9920 in the previous trading day.

The central bank injects 42 billion yuan liquidity to the banking system via 7-day reverse repo and another 93 billion yuan liquidity via 14-day reverser repo on Monday, while 2 billion yuan reverser repo expires, leaving a net 133 billion yuan liquidity.