CHINA’S central bank said yesterday it will start implementing a reserve requirement ratio (RRR) on offshore banks’ domestic deposits, in what appears to be its latest attempt to stem speculation in the yuan and manage money flowing in and out of the country.

    Sources said Sunday that the People’s Bank of China is preparing to raise the reserve requirement ratio for yuan deposits placed in yuan clearing banks. The rate is currently at zero.

    The People’s Bank of China yesterday confirmed the move would be effective next Monday, saying it would help set up a long-term mechanism to regulate cross-border yuan fund flows and would help offshore financial institutions better manage their yuan liquidity.

    But it made no mention of increasing restrictions on banks in its statement, adding to uncertainty in markets about China’s policy intentions.

    Some analysts said the announcement may at this stage be a more symbolic warning to banks, aimed at discouraging them from being too active in cross-border yuan transactions as part of the central bank’s broader campaign to stabilize the yuan.

    The offshore yuan, or CNH, fell earlier this month to its lowest level since trading began in 2010 on fears that China was planning to sharply devalue it to boost its ailing economy.

    By midday yesterday, the offshore yuan was trading 0.13 percent weaker than the onshore spot at 6.5873 per U.S. dollar.

    “The market sees that this is a gesture by the People’s Bank of China to warn speculators that are betting on a fast depreciation of its currency,” said Zhou Hao, senior emerging market economist for Asia at Commerzbank in Singapore.

    If it forces banks offshore to hold more yuan in reserve, it would reduce the amount of the currency available in the market, squeezing supply further and making it more difficult and expensive for speculators, some analysts say.

    “This will have a tightening effect on CNH funding, and follows [the People’s Bank of China’s] reported intervention last week and other measures in recent months,” a report from HSBC said. “From a medium-term perspective, this will also allow the People’s Bank of China to have greater control of CNH money creation.” (SD-Agencies)