China’s forex reserve requirement hike takes effect

China’s central bank raised the foreign exchange reserve requirement ratio for financial institutions from 4 percent to 6 percent on Sunday, a move expected to help balance supply and demand in the foreign exchange market and curb self-reinforcing expectations of renminbi appreciation.

The increase, announced by the People’s Bank of China on Nov 3, is expected to reduce the amount of foreign currency available to financial institutions, helping ease appreciation pressure on the renminbi and keeping the currency’s exchange rate broadly stable at a reasonable and balanced level.