China’s forex re­serves de­cline to $3.23t

The Pak Banker - - BUSINESS -

China's for­eign-ex­change re­serves shrank to the small­est since 2012, in­di­cat­ing that the cen­tral bank sold dol­lars as the yuan's re­treat to a five-year low ex­ac­er­bated de­pre­ci­a­tion pres­sure.

The world's largest cur­rency hoard de­creased by $99.5 bil­lion in Jan­uary to $3.23 tril­lion, ac­cord­ing to a Peo­ple's Bank of China state­ment re­leased on Sun­day. The con­trac­tion was less than a Bloomberg sur­vey's me­dian es­ti­mate of a $120 bil­lion drop. The stock­pile slumped by more than half a tril­lion dol­lars in 2015, the first-ever an­nual de­cline.

Pol­icy mak­ers fight­ing to hold up the weak­en­ing yuan amid slow- er eco­nomic growth, plung­ing stocks and in­creas­ing out­flows have been burn­ing through the re­serves. The draw- down has con­tin­ued since the cen­tral bank's sur­prise de­val­u­a­tion of the cur­rency in Au­gust, when the stock­pile tum­bled $ 94 bil­lion, a monthly record be­fore De­cem­ber's un­prece­dented $ 108 bil­lion de­cline.

"While the re­main­ing re­serves rep­re­sent a sub­stan­tial war chest, the rapid pace of de­ple­tion in re­cent months is sim­ply un­sus­tain­able," said Ra­jiv Biswas, Asia-Pa­cific chief econ­o­mist at IHS Global In­sight in Sin­ga­pore. "Do­mes­tic pri­vate in­vestors and global cur­rency traders see a one-way bet against the cur­rency. This has re­sulted in large-scale pri­vate cap­i­tal out­flows since early 2015 as ex­pec­ta­tions mount that the PBOC will even­tu­ally be forced to ca­pit­u­late once its re­serves are suf­fi­ciently de­pleted."

Cap­i­tal out­flows in­creased to $158.7 bil­lion in De­cem­ber, the most since Septem­ber and were $1 tril­lion last year, ac­cord­ing to es­ti­mates from Bloomberg In­tel­li­gence. That's more than seven times the amount of cash that left in 2014.

The PBOC has stepped up ef­forts to stem the ex­o­dus, warn­ing spec­u­la­tors that they will be pun­ished. It in­ter­vened in the Hong Kong mar­ket last month af­ter the yuan's off­shore ex­change rate sank to a record 2.9 per­cent dis­count to the on­shore rate. Apart from sell­ing dol­lars, the mone- tary au­thor­ity also gave guid­ance to some Chi­nese lenders in the city to sus­pend yuan lend­ing to curb short sell­ing, a move that con­trib­uted to the overnight in­ter­bank lend­ing rate surg­ing to an all-time high of 66.8 per­cent on Jan. 12.

The me­dian es­ti­mate in a Bloomberg sur­vey is for the yuan to drop to 6.76 a dol­lar by the end of this year, with Rabobank Group the most pes­simistic with a 7.53 pre­dic­tion. The cur­rency has de­clined 1.24 per­cent so far this year, clos­ing at 6.5755 in Shang­hai on Fri­day. Chi­nese fi­nan­cial mar­kets are shut for the Lu­nar New Year hol­i­day.

China's top eco­nomic plan­ner said that the ob­jec­tive for this year is for an ex­pan­sion in the range of 6.5 per­cent to 7 per­cent. The 6.9 per­cent growth in 2015 was the slow­est in 25 years. Ex­ports prob­a­bly de­clined for the sev­enth straight month in Jan­uary, ac­cord­ing to the me­dian es­ti­mate in a Bloomberg sur­vey be­fore data due Feb. 15. China in­creased its gold hoard in Jan­uary, rais­ing its hold­ings to 57.18 mil­lion ounces at it looks to di­ver­sify its for­eign-ex­change stock­pile.

"The smaller de­cline in the re­serves sug­gests that some cap­i­tal out­flow re­stric­tions im­posed in Jan­uary worked, " Shen Jian­guang, chief Asia econ­o­mist at Mizuho Se­cu­ri­ties Asia Ltd. in Hong Kong, wrote in a note on Sun­day, adding that he es­ti­mates the drop in Fe­bru­ary will be "much smaller."

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