Ex­perts see signs of sta­ble yuan ahead

For­eign ex­change re­serves de­cline; bank not wor­ried

China Daily (USA) - - TOP NEWS - ByWANG YANFEI wangyan­fei@chi­nadaily.com.cn

China’s for­eign ex­change re­serves fell in Au­gust due to short-term de­pre­ci­a­tion, but there are signs of sta­bi­liza­tion for the com­ing months, econ­o­mists said.

The coun­try’s for­eign ex­change re­serves fell by $15.89 bil­lion to $3.185 tril­lion in Au­gust, of­fi­cial data re­leased last week showed. It was the sec­ond con­sec­u­tive monthly de­cline, hit­ting their low­est point since De­cem­ber 2011.

Yi Gang, vice-gover­nor of the Peo­ple’s Bank of China, the cen­tral bank, said that China has an ad­e­quate cush­ion for main­tain­ing fi­nan­cial stability, and its cur­rency will con­tinue to be sta­ble in the long term. China has the largest for­eign ex­change re­serves in the world, Yi said.

WangYouxin, aneconomist at the In­sti­tute of In­ter­na­tional Fi­nance, a think tank un­der the Bank of China, said the monthly fluc­tu­a­tion of for­eign ex­change re­serves has a lot to do with the move­ment of theUS dol­lar.

Since July, the mar­ket had ex­pected the US Fed­eral Re­serve to raise interest rates. Those ex­pec­ta­tions in­ten­si­fied in Au­gust af­ter a cen­tral bankers’ meet­ing in Jack­son Hole, Wy­oming, as an­a­lysts widely ex­pected the hike to come in Septem­ber.

“The change in­moo­dled to the de­pre­ci­a­tion of the yuan by 0.15 per­cent and 0.45 per­cent in July and Au­gust, re­spec­tively, with more cap­i­tal flow­ing out of the coun­try,” he said.

“Ex­ist­ing mar­ket ex­pec­ta­tions for an interest rate hike by theUS Fed in De­cem­ber— al­though it is not im­mi­nent — would sup­port the dol­lar and point to con­tin­ued pres­sure on the Chi­nese cur­rency and its for­eign ex­change re­serves.”

For China, how­ever, the pres­sure would not be heavy, ac­cord­ing to Xu Yang, an econ­o­mist at Shang­hai-based Guo­jin Se­cu­ri­ties Co.

Xu said wor­ries about large cap­i­tal out­flows have been less­en­ing as for­eign ex­change re­serves have shrunk in re­cent months.

China’s cap­i­tal out­flow was $156.1 bil­lion in the first quar­ter, and it was re­duced to $49.1 bil­lion in the sec­ond quar­ter, in­di­cat­ing an im­prov­ing

“The cen­tral bank has been less will­ing to in­ter­vene in ex­change rates through cap­i­tal con­trols,” Xu said, adding that there would not be sus­tained pres­sure from cap­i­tal out­flows.

TomOr­lik, chief Asia econ­o­mist at Bloomberg In­tel­li­gence, ex­pected the yuan to sta­bi­lize soon. He based that on what he said were re­cent signs of the coun­try’s re­silient growth, a re­duced like­li­hood for a US Fed­eral Re­serve rate hike at its Septem­ber meet­ing and the yuan’s for­mal in­clu­sion in the Spe­cial Draw­ing Rights bas­ket next month.

“The Chi­nese cur­rency’s in­clu­sion in the SDR bas­ket will take ef­fect in Oc­to­ber, when it will be­come a re­serve as­set. That will in­crease cap­i­tal in­flows and some­what bal­ance the fluc­tu­a­tion of cross-bor­der cap­i­tal flows,” said LiangHong, chief econ­o­mist at China In­ter­na­tional Cap­i­tal Corp. cap­i­tal flow bal­ance.

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