PBOC Raises Forex Deposit Reserve Ratio From 4% to 6% to Slow Yuan Rally

China's central bank moved to cool a rapid appreciation in the yuan on November 3, announcing it would raise the foreign exchange deposit reserve requirement ratio for financial institutions by 2 percentage points, from 4% to 6%, effective November 15, 2026. The People's Bank of China measure forces banks to hold a larger share of their foreign-currency deposits, primarily U.S. dollars, as non-interest-bearing reserves at the central bank.

By tightening onshore dollar liquidity and reducing the supply of USD available in the interbank market, the move limits the pool of dollars that can be converted into yuan, easing upward pressure on the currency. The PBOC has used this tool in both directions before, hiking the ratio from 5% to 7% to 9% in 2021 when the yuan was strengthening too quickly, then cutting it back to 4% in 2023 when the currency faced depreciation pressure.

Markets responded quickly, with the offshore yuan weakening nearly 0.2% to 6.6588 per dollar in the immediate aftermath of the announcement. The move is widely read as a signal that the PBOC prefers a stable, two-way exchange rate rather than a continued one-way appreciation, reinforcing its stated preference for keeping the yuan at a "reasonable and balanced" level.