China’s central bank will impose required reserve ratios on yuan deposits in the mainland of participating offshore banks in a bid to stabilize the currency.
The move will take effect from Jan. 25, Bloomberg News reported, citing people familiar with the matter. The reserve ratio was previously at zero percent on offshore banks’ yuan deposits in the mainland.
The deposits will now attract the same ratio as applicable to Chinese banks.
Premier Li Keqiang on Friday pledged a “stable” yuan exchange rate after interbank borrowing costs in Hong Kong surged to a record as the People’s Bank of China sought to narrow its discount to the mainland rate.
The offshore yuan capped its biggest weekly advance since October after the central bank repeatedly bought the currency in Hong Kong.
Applying reserve ratios on offshore banks’ yuan deposits in China may raise offshore yuan rates and increase the cost of short-selling the currency in the short term, said Zhou Hao, an economist at Commerzbank AG in Singapore.
The offshore yuan market will also be hurt because of uncertainties related to capital and policies, Zhou said.
The PBOC started to include mainland yuan deposits of offshore banks in reserve requirements last year, at a zero percent rate.
Yuan deposits held by clearing banks in the mainland will also be subject to the reserve ratios, the people said.
Offshore participants don’t include foreign central banks and other official reserve management institutions, international financial organizations and sovereign wealth funds, the report said.
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