BEIJING: China's central bank said on Thursday it will raise the foreign exchange reserve requirement ratio for financial institutions by 200 basis points (bps), effective from Dec. 15.

The reserve ratio will be increased to 9% from 7%, the People's Bank of China (PBOC) said on its website, to strengthen FX liquidity management at financial institutions.

The move would force banks to set aside more of their FX deposits, which stood at $1.02 trillion at end-Nov, and markets widely believe the decision is intended to slow the yuan's recent rapid appreciation.

China frees up $188bn for banks in second reserve ratio cut this year

The yuan has risen more than 2% against the dollar since late July. In trade-weighted terms it is at its strongest since late 2015.

The PBOC previously raised the FX reserve requirement ratio for financial institutions to 7% from 5% in June to make it more expensive for banks to hold dollars.