China’s central bank announced on Monday that it would elevate the foreign exchange risk reserve ratio for forward forex trading from zero to 20 per cent.
According to the bank, this will begin from Wednesday.
The People’s Bank of China (PBOC) slashed the rate from 20 per cent to zero in October 2020.
According to a statement from the PBOC, the move is aimed at stabilising forex market expectations and strengthening prudent management at the macro level.
Wen Bin, the Chief Economist at China Minsheng Bank, said the increase would help maintain the supply-demand balance in the country’s forex market.
He said that it was affected by the U.S. Federal Reserve’s rate hikes, as the currencies of many economies had weakened against the dollar.
According to the China Foreign Exchange Trade System, the central parity rate of the Chinese currency renminbi, or the Yuan weakened 378 pips to 7.0298 against the dollar on Monday.
Bin said that there was no ground for the Yuan to weaken for long.
He said that China’s sound economic fundamentals, tamed inflation, stability of international settlements would help render the Yuan exchange rates and the forex market stable
