FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the renminbi and Chinese equity market has strengthened modestly in the Asian trading session as the official support has helped to keep the renminbi more stable over the last week and to sharply narrow the gap between the onshore and offshore rates. Key Quotes “It has been reported overnight that the PBoC will introduce required reserve ratios on renminbi deposits of offshore participant banks. According to Reuters, the deposits that will be affected include: i) offshore participating banks’ CNH deposits placed with onshore corresponding banks; ii) CNH deposits from Bank of China Hong Kong and Macau with PBoC Shenzhen and Zhuhai; and iii) other offshore clearing banks’ CNH deposits placed with onshore parent banks. The rule applies to renminbi deposits from offshore financial institutions that are put in onshore financial institutions, excluding foreign central banks, monetary authorities, international financial organisations and sovereign wealth funds. The steps will reportedly take effect from the 25th January. It will lead to a tightening of liquidity in the offshore renminbi market increasing the cost of funding and acting as a further deterrent to speculative selling of the renminbi in the near-term. However, our analysts in Hong Kong continue to believe that the recent stability of the renminbi will prove only temporary with the weakening trend is likely to resume. The market focus will shift tomorrow to the release of the latest key economic reports from China including the GDP report for Q4. Investor concerns remain heightened in the near-term over the downside risks posed from a sharper economic slowdown in China.” For more information, read our latest forex news.