PBOC to cut FX reserve ratio to zero

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    BEIJING- China’s central bank said it will lower the reserve requirement ratio for financial institutions when conducting some foreign exchange forwards trading to zero with effect from Monday.

    Under current rules, financial institutions must set aside 20 percent of the previous month’s yuan forwards settlement amount as foreign exchange risk reserves.

    “The People’s Bank of China (PBOC) will continue to maintain flexibility in the exchange rate, stabilize market expectations, and keep the yuan basically stable at reasonable and balanced levels,” the central bank said on its website.

    The move came after the onshore spot yuan rate ended at a 17-month high on Friday against the dollar, its biggest oneday percentage gain since 2005.

    Tommy Xie , economist at OCBC Bank in Singapore, said the PBOC’s move could serve to keep the yuan’s appreciation in check, and that it also reinforced how policymakers are keen to open up domestic financial markets to foreign investors.

    “It is the exit of intervention, which marks the further step for RMB to move towards market driven pricing mechanism,” Xie said, referring to the renminbi, or yuan.