China's central bank has told lenders to set aside more of their foreign exchange deposits in reserves, a move intended to ease appreciation pressure on the Chinese yuan, state press reported on May 09.
The central bank will raise the reserve requirement ratio on banks' foreign-currency deposits to five percent from four percent, effective May 15, official newspapers including the China Securities Journal reported.
A spokeswoman from the People's Bank of China declined to comment on the reports, which cited a circular issued to commercial banks. Analysts said the move could ease the upward pressure on the Chinese yuan and perhaps slow the pace of its appreciation in the short-term. The hike will also curb banks' foreign-currency loans, they said.
"The central bank has tried to tighten liquidity on foreign currencies. The rise in the ratio will increase demand for dollars and ease speculation about further appreciation in yuan," said Hao Shufei, a trader with ABN Amro.
"For the rest of the week, I don't expect the yuan to strengthen at the same pace as it has since late April. Actually, the yuan may even weaken against the dollar," Shanghai-based Hao told AFP.
China's currency hit a post-2005 revaluation high against the dollar of 7.6954 on May 08 as the currency continued its slow but steady rise. On May 09, the yuan parity rate was set at 7.6971 to the dollar.
China has progressively tightened the commercial banks' general reserve requirements - money they must deposit with the central bank - in the past year in an effort mop up excess cash and so help slow a runaway economy.
At the end of April, the central bank said the general reserve ratio would rise by 50 basis points to 11 percent, also with effect from May 15 and the seventh such move since June 2006.
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