China is resorting to measures not used since the global financial crisis to temper a rally in its currency as the country battles rising commodity prices and slowing growth, with analysts predicting more actions to come.
A move by the People’s Bank of China that will force lenders to hold more foreign currency indicates that policymakers want to rein in the renminbi’s gains after it touched its strongest level against the dollar in three years last week. That marked a reversal from the years of the Trump administration, which labelled Beijing a currency manipulator in 2019 after the renminbi weakened past the important Rmb7 per dollar level.
The central bank action, announced late on Monday, will raise Chinese financial institutions’ required reserves from 5 to 7 per cent of total foreign exchange deposits “in order to strengthen foreign exchange liquidity management”, according to the PBoC.