order foreign currency

China Raises Foreign-Currency Reserve Requirement (Update2)

May 8 (Bloomberg) -- China's central bank raised the amount of foreign currencies that lenders must keep as reserves, seeking to cool the world's fastest-growing major economy.

Banks must keep 5 percent of their foreign-currency deposits as reserves starting May 15, up from 4 percent, according to a People's Bank of China circular to lenders obtained by Bloomberg News. The increase will remove about $1.7 billion from the economy.

The decision will make less of the $165 billion of foreign- currency deposits as of March 31 available for lending and investment in the stock market, which surged to a record today. It may also ease pressure for appreciation of the Chinese yuan, which has gained 7.5 percent since July, 2005.

``The central bank probably wants to curb excess liquidity and indirectly ease the pressure on the yuan to rise,'' said Guo Zhaoyang, a foreign-exchange analyst at China Everbright Bank in Guangzhou.