BEIJING: China's central bank said it would require banks to keep reserves equivalent to 20 percent of their clients' foreign exchange forwards positions from Monday, in a move to stabilise the yuan currency.
The yuan has fallen to 14-month lows against the dollar in the onshore spot market as the trade dispute between the United States and China worsened. The reserve requirement ratio had been set at zero since last year.
In a statement on its website on Friday, the People's Bank of China (PBOC) said it would take counter-cyclical measures to keep foreign exchange markets stable.
China's offshore yuan rose sharply after the news, hitting a session high of 6.8270, up 0.8 percent on the day.
"It's a gesture to show that the yuan is not in free fall, that the PBOC is still behind it," said Gary Ng, an economist at Natixis in Hong Kong.
"They won't want to see the yuan depreciate beyond 7, which is a very important psychological level."
Earlier on Friday, banks were seen selling dollars at around 6.9 per dollar in the onshore market, three traders said.
The onshore spot market finished domestic trading at 6.8620 per dollar at 0830 GMT, having strengthened from a level of 6.8965 at one point, its lowest since May 15, 2017. It had opened at 6.8571.
The PBOC adopted reserve requirements for financial institutions settling foreign exchange forward yuan positions in July 2016 before scrapping them last September, when Beijing was anxious to quash one-way bets on the yuan as outflows eased and exporters faced strain.
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