China: PBoC cut FC RRR to alleviate pressure on CNY – UOB

Economist at UOB Group Ho Woei Chen, CFA, and Senior FX Strategist Peter Chia assess the recent decision by the PBoC.

Key Takeaways

“The People’s Bank of China (PBoC) announced a 100 bps cut to the reserve requirement ratio for foreign currency deposits (FC RRR) to 8% from current 9% with effect from 15 May.”

“The move will release more foreign currency liquidity into the onshore market and ease pressure on the CNY depreciation, coming on the back of recent measures to stabilise market and prevent a hard-landing to the economy as China struggles to contain the spread of COVID-19.”

“Capital outflows from China have accelerated in Mar with a record amount of outflows driven by more hawkish Fed while uncertainty from the Russia-Ukraine conflicts and worsening outlook in China are also spurring greater outflow pressure.”

“The FC RRR cut may stabilise CNY in the near term but unlikely to change the longer term weakening trend.”