PBoC reserve ratio cut spurs short-term FX hedging
Removal of 20% forex risk rule drives exporters towards options and onshore forwards
The People’s Bank of China’s decision to scrap its 20% foreign exchange risk reserve requirement has triggered a pick-up in short-term hedging activity among corporates, although dealers say the move is unlikely to shift medium-term positioning while the interest rate differential between US dollar and renminbi rates persists.
The PBoC announced on February 27 that it would reduce the reserve requirement to zero. The rule, which had been in place since September 2022 but had also been in force
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