‘CHINA SCRAPS RESERVE RULE’

PBoC move may slow yuan’s appreciation

BEIJING

CHINA’S central bank will effectively remove a reserve requirement for trading foreign currency forwards — a move that may slow the pace of yuan appreciation after its biggest two-week surge in at least a decade — according to people familiar with the matter.

Effective today, the People’s Bank of China (PBoC) will stop requiring financial institutions to set aside cash when buying dollars for clients through currency forwards, said the people.

The ratio is currently set at 20 per cent. Chinese authorities put the rule in place in October 2015 in a move seen as an effort to restrict dollar purchases when the yuan was weakening. A removal would make it easier for traders to buy the US currency, reducing pressure for yuan appreciation.

The Chinese exchange rate has rallied close to five per cent over the past three months amid speculation policymakers will buoy the exchange rate in the run-up to a key Communist Party meeting on October 18. That Asia-beating surge has now prompted talk the PBoC may try and slow the advance.

The potential move to do away with the reserve requirement “is a good way to signal discomfort with the pace of appreciation and shake out the market”, said Sacha Tihanyi, a strategist at TD Securities. Bloomberg