The central bank reactivates counter-cyclical adjustment and reduces the foreign exchange risk reserve ratio for forward foreign exchange sales to 0

Caixin: The RMB exchange rate has appreciated for consecutive days, and the central bank has reactivated the countercyclical adjustment “toolbox” after three years.

On the morning of February 27th at 8:30, the People’s Bank of China announced that to promote the development of the foreign exchange market and support enterprises in managing exchange rate risks, the foreign exchange risk reserve ratio for forward sales will be reduced from 20% to 0% starting March 2, 2026.

The foreign exchange risk reserve is a countercyclical adjustment tool established by the central bank in August 2015. It was initially set at 20%, then adjusted several times, always to 0% or 20%. The most recent adjustment was in September 2022.

Senior industry experts pointed out that this is the central bank’s first use of this tool in nearly three and a half years. The reduction of the forward sales risk reserve ratio essentially signifies a reasonable exit from previous measures and promotes a return to neutral foreign exchange policies.