China's central bank decided to normalize the reserve requirements on deposits placed by overseas financial institutions at their branches in the country starting from Jan. 25, according to a statement released by the People's Bank of China (PBOC) on Monday.
Overseas financial institutions do not include central banks and other similar agencies such as official reserve managers, international financial organizations and sovereign wealth funds.
The PBOC set the reserve requirement ratio (RRR) for such institutions at zero in December 2014, but the ratio will now be "normalized."
The move will not affect domestic yuan liquidity, the PBOC said in the statement.
Setting a normal RRR for overseas financial institutions will "help subdue cyclical movement of cross-border yuan funds and guide overseas financial institutions in strengthening their management of yuan liquidity," the statement said.
The policy will increase the cost of short-selling offshore yuan and depress arbitrage based on the spreads of offshore and onshore yuan, according to China International Capital Corporation, a Chinese investment bank.
Offshore yuan has weakened sharply in past few days. In early January, it dipped below 6.7 against the U.S dollar. Offshore yuan rose moderately in early morning trading on Monday.