China to Lower FX RRR by 200Bps to 4%

The People's Bank of China (PBoC) said in a statement Friday that it would slash the foreign exchange reserve requirement ratio (RRR) by 200 basis points to 4% from 6% beginning September, 15th.

It was the first such reduction this year, as the central bank seeks to stem further weakness in the yuan and help a faltering economic recovery.

The move will effectively free up $16.4 billion worth of foreign exchange with China's FX deposits standing at $821.8 billion at end-July.

The board mentioned that this action was to improve financial institutions' ability to use foreign exchange funds.

Chinese banks recently began cutting their yuan deposit rates under guidance from the PBoC, which is expected to ramp up local liquidity and present a weaker yuan in the coming months.

The local currency is one of the worst-performing Asian currencies this year, falling around 5%, amid an economic downturn in the Chinese economy and widening yield differentials with the US.