China's central bank has decided to increase the amount of foreign-currency deposits that financial institutions need to hold as reserves starting on June 15, a move aimed at curbing sell-offs of foreign currencies after the renminbi's value climbed to a record high.
The People's Bank of China announced the increase in the required reserve ratio on foreign exchange deposits in financial institutions to 7 percent from 5 percent, to improve forex liquidity management in financial institutions. The new policy will take effect on June 15, a statement said on Monday.
The last time the central bank did so was in May 2007, when it boosted the ratio to 5 percent from 4 percent. This tightened the supply of foreign currencies in the onshore market and increased the costs of foreign currency denominated loans, according to experts.