China’s central bank said it will cut the amount of foreign exchange banks must hold as reserves, a move aimed at curbing the yuan’s depreciation, which is at its weakest levels in a year.
The People’s Bank of China (PBOC) said it will cut the foreign exchange reserve requirement ratio (RRR) by 100 basis points to 8%, starting on May 15, to “improve the ability of institutions financial institutions to use the funds in foreign currency,” according to a statement.
The PBOC previously raised the RRR for financial institutions by 200 basis points in December 2021, to stem the rise of the yuan and make it more expensive for banks to hold dollars.
Cutting foreign exchange reserve ratios is expected to lend some support to the heavily controlled currency by freeing up dollars that banks need to hold at the central bank.
The yuan has lost more than 3% against the dollar in the past month and hit a one-year low of 6.5775 per dollar yesterday, on concerns of deteriorating growth prospects caused by the Covid-19 lockdowns. in Shanghai and other big cities.
Analysts have said the yuan’s recent losses have been decoupled from China’s economic fundamentals.