PBoC deposit requirement hits FX hedging, again
Reinstated rule hikes forwards costs and dents volumes, but volatility sees corporate demand persist
Volumes of onshore renminbi foreign exchange forwards sales fell by 82% in the month after the People’s Bank of China raised the cost of the trades once again, but sources say heightened volatility means many corporates will still be happy to pay the additional outlay.
From September 28, the PBoC has required banks to put up a zero-interest, US dollar-denominated deposit representing 20% of the notional value of all new FX forwards and swaps that are selling onshore renminbi for a year. This
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