SHANGHAI (Reuters) – China’s central bank said on Monday it would reinstate currency risk buffers for certain futures contracts, a move that would make betting against the yuan more expensive to slow the pace of the recent depreciation.

The People’s Bank of China (PBOC) said it would increase foreign exchange risk reserves for financial institutions when buying currencies through currency futures to 20% from the current zero, to from September 28.

The move to take over currency risk reserves would effectively raise the cost of shorting the yuan at a time when the local currency faces further depreciation pressure, traders and analysts said.

The yuan was hit by a combination of general dollar strength, China’s faltering economy and an easier monetary bias adopted by authorities to support growth.

The Chinese currency’s decline accelerated after the PBOC cut key interest rates in August to further broaden its policy stance against other major economies that are aggressively raising rates.

The yuan has fallen more than 4% against the dollar since mid-August to breach the psychologically important 7 to the dollar level, and is on course for its biggest annual loss since 1994, when China unified official and market exchange rates.

The spot yuan barely budged on the news. The onshore yuan was trading at 7.1450 to the dollar, down from the previous late-night close of 7.1298 on Friday. Its offshore counterpart briefly rebounded to 7.13 before hitting 7.1513 for the last time at 0143 GMT.

Over the past few months, authorities have intensified their efforts to rein in yuan weakness by persistently setting firmer-than-expected median fixations, issuing verbal warnings and pushing back on immediate easing measures.

Monday’s announcement marks the latest policy move to stem the faltering currency after the PBOC announced it would reduce the amount of foreign currency that financial institutions must hold as reserves at the start of the month.

China’s central bank removed risk reserve requirements in October 2020 when the yuan rose sharply.

(Reporting by Winni Zhou and Brenda Goh; Editing by Kim Coghill and Shri Navaratnam)

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