China's central bank will raise the foreign-exchange reserve requirement for financial institutions by two percentage points, from 4 to 6 per cent, effective November 15. The decision is intended to absorb foreign-currency liquidity and moderate a yuan rally that has accelerated during 2026.
Based on the current volume of deposits, the higher ratio could remove about $24 billion from the market. Banks will have to retain more foreign currency rather than lend or sell it, tightening supply and making it less attractive to exchange dollars for yuan at the pace seen in recent months.
The onshore yuan weakened 0.37 per cent after the announcement to about 6.6728 per dollar, its lowest level since October 23 and its largest one-day decline since May 15. The offshore currency moved in the same direction, showing that traders viewed the step as an effective short-term signal.
The yuan has still gained around 5 per cent against the dollar this year, making it Asia's best-performing currency. A large trade surplus, resilient exports and increased conversion of foreign earnings by Chinese companies have created persistent demand that the central bank now wants to manage rather than eliminate.
The move reverses a reduction made in September 2023, when authorities cut the ratio to slow capital outflows and defend a weakening currency. Using the same instrument in the opposite direction demonstrates how the People's Bank of China adjusts liquidity without committing to a fixed exchange-rate target.
Policymakers reinforced the message through the daily midpoint, setting it at 6.7150 per dollar, 661 pips weaker than market estimates and the largest weak-side deviation since September 10. Deputy governor Zou Lan has said market forces should play a greater role, but the bank continues to lean against movements it considers excessive.
Analysts see the measure as a brake, not a reversal of the underlying trend. Corporate dollar sales and China's external surplus can continue to support the currency. The next test is whether the higher reserve cost changes those flows or merely produces a temporary adjustment before appreciation pressure returns.
