PBoC is to raise the forex reserve requirment ratio by 2ppts

• PBoC decided to raise the Foreign Exchange Deposit Reserve Ratio for financial institutions.

The FX deposit reserve ratio is one of the PBoC's standing tools for leaning against one-way renminbi moves: raising it ties up a larger share of banks' onshore foreign currency deposits, tightening FX liquidity and raising the cost of funding long-dollar positioning, which in past episodes has been deployed when appreciation pressure on the currency ran ahead of official comfort. Historically the move has tended to slow or interrupt an appreciation trend rather than reverse it, and the market read has hinged on whether it is a one-off signal or the first in a sequence. Prior form matters here: the PBoC has typically combined this lever with the daily fixing, and at times with adjustments to the countercyclical factor in the fixing formula and to macro-prudential parameters on cross-border flows, so the tells are the next several fixings relative to models and whether accompanying measures follow. The transmission channel is onshore FX funding cost and the signalling content of the fixing, not any direct change to onshore rates, which distinguishes it from domestic RRR moves. A two-point adjustment is at the larger end of past increments, which underscores the signalling intent. Worth observing is whether offshore pricing gaps from the onshore rate in the sessions that follow.