In this undated file photo, pedestrians pass the headquarters of the People's Bank of China in Beijing. (PHOTO BY KUANG DA / FOR CHINA DAILY)

BEIJING - China's central bank said on Monday that it will cut forex reserve requirement ratio for financial institutions by 2 percentage points from Sept 15.

The reserve requirement ratio will be reduced to 6 percent from the current 8 percent, the People's Bank of China said in a short notice on its website.

The central bank's move sends a positive signal to the market, which is conducive to stabilizing renminbi exchange rate expectations and avoiding irrational overshooting.

Wen Bin, Chief Economist, China Minsheng Bank

The move aims to improve the capacity of financial institutions to use forex funds, according to the notice.

"The cut will help increase the liquidity of the US dollar in the market and contribute to the stability of the renminbi exchange rate," said Wen Bin, chief economist at China Minsheng Bank.

Due to the accelerated tightening of monetary policy by the US. Federal Reserve, the US dollar index once broke the 110 mark, which triggered the passive depreciation of the renminbi against the US dollar.

"The central bank's move sends a positive signal to the market, which is conducive to stabilizing renminbi exchange rate expectations and avoiding irrational overshooting," said Wen.

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The central bank last cut the forex reserve requirement ratio in May, slashing it by 1 percentage point.