China Sept forex re­serves fall to $3.166 tril­lion

Kuwait Times - - BUSINESS -

BEI­JING:

China’s for­eign ex­change re­serves fell for a third straight month in Septem­ber and by slightly more than mar­kets had ex­pected, sug­gest­ing fresh cap­i­tal out­flows from the world’s sec­ond-largest econ­omy. Forex re­serves fell to $3.166 tril­lion from $3.185 tril­lion in Au­gust, cen­tral bank data showed yes­ter­day. Econ­o­mists polled by Reuters had ex­pected re­serves to ease to $3.18 tril­lion, af­ter drop­ping to the lowest since 2011 in Au­gust af­ter the cen­tral bank in­ter­vened to sup­port the yuan cur­rency as it weak­ened to near sixyear lows.

China’s re­serves, the largest in the world, fell by a record $513 bil­lion last year af­ter Bei­jing de­val­ued the yuan cur­rency, spark­ing a flood of cap­i­tal out­flows that threat­ened to desta­bi­lize the world’s sec­ond-largest econ­omy and alarmed global fi­nan­cial mar­kets.

But de­clines had slowed sharply in the first half of this year as au­thor­i­ties tight­ened cap­i­tal con­trols and cracked down on forex trad­ing which they sus­pected to be spec­u­la­tion. Ten­ta­tive signs of sta­bi­liza­tion in the econ­omy and in­vest­ment in­flows were also be­lieved to be off­set­ting out­flow pres­sures. How­ever, while Septem­ber’s $18.8 bil­lion drop was small com­pared with over­all re­serves, it was larger than a de­cline of $15.89 bil­lion in Au­gust and was the big­gest in four months.

Traders be­lieve the cen­tral bank has stepped in via state-run banks since July to slow the pace of de­pre­ci­a­tion in the yuan, which has weak­ened 2.7 per­cent against the US dol­lar so far this year.

But most market watch­ers ex­pect the PBOC will al­low the yuan to slowly re­sume its grad­ual de­scent later this year, es­pe­cially if the chances of a US in­ter­est rate hike are seen rising, buoy­ing the dol­lar. Re­cent data showed net for­eign ex­change sales by China’s com­mer­cial banks in Au­gust fell to the lowest in about a year, sug­gest­ing out­flow pres­sures were eas­ing.

China’s cross-bor­der cap­i­tal flows will re­main nor­mal in the sec­ond half of 2016, thanks to pos­i­tive fac­tors such as more trans­parency in how the yuan ex­change rate is man­aged and also due to re­ced­ing pres­sures to ser­vice huge off­shore debts held by Chi­nese com­pa­nies, the State Ad­min­is­tra­tion of For­eign Ex­change (SAFE), China’s for­eign ex­change reg­u­la­tor, said last month.

Reg­u­la­tors will con­tinue to crack down on forex vi­o­la­tions and strengthen mon­i­tor­ing of cross-bor­der cap­i­tal flows, SAFE said, adding it will also push for­ward to achieve cap­i­tal ac­count con­vert­ibil­ity in an or­derly man­ner. China’s gold re­serves rose to $78.169 bil­lion at the end of Septem­ber, from $77.18 bil­lion the pre­vi­ous month, the Peo­ple’s Bank of China said on its web­site. — Reuters

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