(Yicai Global) Oct. 8 -- The Chinese mainland's stock markets and the onshore yuan exchange rate both fell yesterday, the first day back after the week-long National Day holiday and the same day the central bank unveiled plans to lower the reserve requirement ratio.

The three core stock indexes on the mainland, the Shanghai Composite, Shenzhen Component and Growth Enterprise Market benchmarks declined 3.72 percent, 4.05 percent and 4.09 percent. The gauges followed Hong Kong's Hang Seng index, which remained open during the holiday and slid 4.38 percent over its course.

The People's Bank of China announced earlier yesterday that it would lower the required reserve ratio by 1 percent for most banks on Oct. 15, allowing lenders to pay off CNY450 million (USD65 million) in medium-term lending facilities due to mature that day and freeing up another CNY750 million in liquidity.

Lowering the reserve ratio typically leads to the devaluation of the domestic currency, because banks use the extra money available to lend more and this reduces interest rates.

The central bank claimed the move would have little impact on the yuan, saying it had solid fundamentals and would remain stable, but reduced the central parity rate against the dollar by 165 basis points yesterday, to 6.8957. That was the biggest drop in almost a month and led to the redback's lowest dollar value since May last year.

PBOC sets the benchmark on the morning of each business day, allowing spot rates to deviate 2 percent above or below the figure.

The international rate, which is not governed by the central bank, also slipped to 321 basis points to an 18 month low of 6.9135.

Editor: James Boynton