Beijing Taps The Brakes: PBOC Hikes FX Reserve Ratio For First Time In Five Years As Yuan Rally Gets "Uncomfortable"

For most of the past year, Beijing's problem with the yuan has been the opposite of the one it spent the previous decade fighting. On Tuesday, it finally did something about it.

The People's Bank of China said it would raise the reserve requirement ratio on foreign exchange deposits by 2 percentage points to 6% from 4%, effective November 15, in what Reuters called "one of the strongest moves to slow the pace of a long rally in the yuan." Officially, the hike is "aimed at strengthening the management of foreign exchange liquidity in financial institutions" (or, as the WSJ politely put it, the central bank "tweaks" its forex rules). Unofficially, the timing tells you everything: per the South China Morning Post, the yuan had just broken through 6.65 per dollar, its strongest level since June 2022.

"Increased Discomfort With The Pace"