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 five years. The move requires financial institutions to hold a larger share of their foreign currency deposits in reserve, reducing the amount available for lending and other deployment. The offshore yuan fell more than 280 pips against the dollar on the day, according to BigGo Finance.

The ratio is a macroprudential tool rather than a direct interest rate lever. By tightening the supply of foreign currency liquidity in the banking system, authorities can influence the cost of funding in foreign currencies and temper pressure on the exchange rate. The five-year gap since the last adjustment makes the change notable as a signal of the central bank's willingness to use reserve-ratio tools when currency conditions warrant.

For markets, the key questions are whether the adjustment is a one-off or the start of a tightening sequence, and how interbank foreign currency funding costs respond in the coming weeks. Offshore yuan liquidity conditions and the spread between onshore and offshore rates are worth watching, since they often reflect how strongly policy signals are being transmitted.