BEIJING, June 1 (Xinhua) -- China's to-be-hiked required reserve ratio (RRR) for foreign currency deposits as from June 15 may not significantly weigh on local bond market, reported Xinhua-run Xinhua-Finance citing analysts with Jianghai Securities on Monday.
On May 31, Chinese central bank, the People's Bank of China (PBOC) announced to raise the RRR for foreign currency deposits by two percent from five percent to seven percent, spurring immediately concerns that PBOC took the move to ease the pressures on appreciation of Renminbi (RMB) recently.
The adjustment of RRR for foreign currency deposits is not a new vehicle in China and in 2005, 2006 and 2007 when RMB faced enormous appreciation pressures, PBOC also shored up the RRR for foreign currency deposits.
Based on these, the RRR hike for foreign currency deposits targets offsetting the appreciating pressures of RMB as PBOC used it to reduce U.S. dollar supplies on the foreign exchange market, according to Jianghai Securities.
Qu Qing, chief economist with Jianghai Securities noted that the spike of RRR for foreign currency reserves equals lowering the foreign exchange positions available of banks and diminish the U.S. dollar supplies to alleviate the appreciation pressures on RMB.
However, the RRR hike may increase about 20 billion U.S. dollars of required foreign currency reserves for banks given the around one trillion U.S. dollars of massive foreign currency deposits in China, whose influences may be relatively limited, added Qu.
The securities broker attributed the recent round of RMB appreciation to the currently excessive U.S. dollar liquidity and China's resilient economic recovery as well, saying that external capital kept flowing into China to seek fortune in assets in China, which are currently much more attractive than the stock and bond assets in the United States.
During April and May, the habitual tax payment of enterprises to the exchequer, which usually tightens financial market liquidity in China, did not cause brief liquidity crunches at all, hinting relatively hefty and rapid foreign capital inflows.
In the following months, Jianghai Securities suggested that bond market investors should pay close attention to the exchange rate of RMB and if the U.S. dollar remains weak, the possibility for PBOC to adopt other vehicles to offset the appreciation pressures of RMB still exists. (Edited by Duan Jing with Xinhua Silk Road, duanjing@xinhua.org)
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