For­eign re­serves fall in Oc­to­ber

The fourth con­sec­u­tive drop in­di­cates heavy pres­sure from cap­i­tal out­flows

China Daily (USA) - - CHINA - By XIN ZHIMING xinzhim­ing@chi­

China’s for­eign ex­change re­serves fell for the fourth con­sec­u­tive month in Oc­to­ber, in­di­cat­ing sus­tained cap­i­tal out­flow pres­sure, de­spite ini­tial signs of sta­bi­liza­tion in the world’s sec­ond­largest econ­omy, an­a­lysts said.

For­eign ex­change re­serves fell by $45.73 bil­lion — the big­gest monthly drop since Jan­uary — to $3.12 tril­lion, fol­low­ing a drop of $18.79 bil­lion in Septem­ber, the Peo­ple’s Bank of China, the cen­tral­bank, said on Mon­day. They stood at the low­est level since March 2011, ac­cord­ing to cen­tral bank data.

An­a­lysts said the fall in­di­cates heavy pres­sure from cap­i­tal out­flows for China, with the trend likely to con­tinue in the short term.

“The drop sug­gests cap­i­tal out­flow pres­sure may have in­creased in Oc­to­ber,” said Liu Dongliang, se­nior cur­rency an­a­lyst at China Mer­chants Se­cu­ri­ties.

The yuan’s fall­ing ex­change rate against the-US dol­lar is a fac­tor be­hind the fall in for­eign ex­change re­serves. The cur­rency’s cen­tral par­ity rate, set by the cen­tral bank, fell by 211 ba­sis points on Mon­day to 6.77 against the US dol­lar. It has re­mained weak in re­cent months, which an­a­lysts say has driven the cen­tral bank to sell US dol­lars to sup­port the yuan, thus lead­ing to con­trac­tion of for­eign ex­change re­serves.

Mean­while, the strength­en­ing US dol­lar has been seen as a ma­jor cause of China’s fall­ing for­eign ex­change re­serves as it can cause cap­i­tal to flow out of China, trig­ger­ing cen­tral bank in­ter­ven­tion.

More­over, the rise in the US dol­lar can drive down the rates of other cur­ren­cies, and as China’s for­eign ex­change re­serves are partly de­nom­i­nated by non-US dol­lar cur­ren­cies, the re­serve pool has con­tracted in terms of such cur­ren­cies.

The green­back has risen broadly against ma­jor global cur­ren­cies ahead of an ex­pected in­ter­est rate hike by the US Fed­eral Re­serve in De­cem­ber.

Amid the US pres­i­den­tial elec­tion, un­cer­tain­ties may drive in­ter­na­tional cap­i­tal to buy US dol­lar as­sets as a safe haven, thus putting more pres­sure on China’s for­eign ex­change re­serves, Liu said.

The yuan might con­tinue to de­pre­ci­ate against the US dol­lar, an­a­lysts said, putting pres­sure on China’s for­eign ex­change re­serve pool.

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