China re­serves take a $40 bil­lion hit on yuan in­ter­ven­tion


China's for­eign-ex­change re­serves are ex­pected to drop by some $40 bil­lion a month as the cen­tral bank in­ter­venes to sup­port the yuan, a Bloomberg sur­vey showed.

The hold­ings, the world's largest, will de­cline to $3.45 tril­lion by year-end from $3.65 tril­lion at the end of July, based on the me­dian es­ti­mate of 28 strate­gists and traders sur­veyed fol­low­ing last week's sur­prise de­val­u­a­tion of the cur­rency. The fore­casts ranged from $3 tril­lion to $3.71 tril­lion. The cur­rency is seen weak­en­ing 1.6 per­cent to 6.50 a dol­lar in the re­main­der of 2015, the sur­vey showed.

"The cen­tral bank will fre­quently in­ter­vene in the for­eign-ex­change mar­ket in the next three months as it needs to en­sure the cur­rency is sta­ble," said Ken Peng, a strate­gist at Cit­i­group Inc. in Hong Kong, the world's big­gest cur­rency trader. "China will spend some of its for­eign-ex­change re­serves to achieve that goal."

The Peo­ple's Bank of China is lim­it­ing the yuan's de­pre­ci­a­tion to pre­vent an ex­o­dus of cap­i­tal as it con­tends with the slow­est eco­nomic growth in more than two decades. While that sup­port is eat­ing into the na­tion's for­eign re­serves, which fell $192 bil­lion in the last seven months, the hold­ings are still more than triple those of any other na­tion. The mon­e­tary au­thor­ity bought yuan via agent banks last week to sta­bi­lize the ex­change rate af­ter an Aug. 11 de­val­u­a­tion trig­gered the steep­est slide in two decades. The PBOC, which had main­tained a de facto peg of about 6.20 per dol­lar over the last four months, said Thurs­day there was no ba­sis for de­pre­ci­a­tion to per­sist and it would step in to curb large fluc­tu­a­tions.

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