China's Central Bank Raises FX Deposit Reserve Ratio to 6% After Five-Year Hiatus; Offshore Yuan Falls Over 280 Pips in a Day - BigGo Finance

China's central bank raised the reserve requirement ratio on foreign currency deposits to 6%, marking the first adjustment in roughly five years. The move requires financial institutions to hold a larger share of their foreign currency deposits in reserve, which reduces the amount of foreign exchange available for lending and other deployment. The offshore yuan weakened by more than 280 pips over the course of the day, according to BigGo Finance.

The mechanism is straightforward: a higher FX deposit reserve ratio tightens the supply of foreign currency liquidity within the banking system. By making it more costly for institutions to deploy dollar holdings, the measure can ease downward pressure on the yuan by discouraging bearish positioning in the currency. The five-year gap since the last adjustment suggests the tool is reserved for specific conditions rather than routine management, which is why markets read the change as a signal of intent.

What to watch now is follow-through. Traders will monitor whether the offshore yuan stabilizes or continues to move, and whether the central bank introduces complementary measures. Also worth tracking is the effect on cross-border funding costs, since tighter FX liquidity can feed into lending rates for institutions that rely on foreign currency deposits.