(Yicai Global) Sept. 5 -- The People’s Bank of China said it will cut the reserve requirement ratio for foreign currency deposits, or the amount of forex reserves that banks must hold, as the yuan touched a two-year low against the US dollar.

The PBOC will lower the RRR to 6 percent from 8 percent on Sept. 15, according to a statement posted on its website. The central bank said the move was aimed at bolstering the management of foreign currencies at financial institutions.

Since the start of the year, the yuan has depreciated more than 9 percent versus the dollar. The yuan traded onshore closed at 6.9366 against the dollar today, weakening 338 basis points, after touching 6.9430, a record low since August 2020.

The dollar has appreciated by 15 percent this year after the US Federal Reserve raised interest rates several times, PBOC Deputy Governor Liu Guoqiang said at a press conference today.

In this context, other reserve currencies in the International Monetary Fund’s Special Drawing Rights basket have all depreciated sharply against the greenback. Compared with other non-US dollar currencies, the yuan has depreciated the least.

China’s foreign exchange market is functioning normally, despite a certain and controllable spillover effect from US monetary policy, Liu said. This is due to the strong resilience of China’s economy, and the resilience of the foreign exchange market has also been much enhanced by exchange rate system reforms, he added.

China has effectively coordinated anti-Covid-19 measures and economic development to maintain growth, enabling the country to roll out an ordinary monetary policy without over-issuing currency, Liu said, adding that China has ample monetary policy room, with plenty of tools.

Editor: Tom Litting