China FX re­serves drop to 18-month low in Oct

Gulf Times Business - - BUSINESS -

China’s for­eign ex­change re­serves fell more than ex­pected to an 18-month low in Oc­to­ber amid ris­ing US trade fric­tions, sug­gest­ing au­thor­i­ties may be slowly step­ping up in­ter­ven­tions to keep the yuan from break­ing through a key sup­port level.

Re­serves fell by $33.93bn in Oc­to­ber to $3.053tn, cen­tral bank data showed yes­ter­day.

The drop was the big­gest monthly de­cline since De­cem­ber 2016, and com­pared with a fall of $22.69bn in Septem­ber.

Econ­o­mists polled by Reuters had ex­pected re­serves to drop $27bn to $3.06tn. China’s for­eign ex­change reg­u­la­tor at­trib­uted the fall to ad­just­ments in global as­set prices and cur­rency val­u­a­tion ef­fects caused by a 2.1% rise in the dol­lar in­dex.

Net for­eign ex­change sales by China’s com­mer­cial banks are likely to be around $3bn in Oc­to­ber, a drop of over 80% from Septem­ber, the State Ad­min­is­tra­tion of For­eign Ex­change said in a state­ment.

The yuan slipped closer to the psy­cho­log­i­cally im­por­tant level of 7 per dol­lar in late Oc­to­ber – a level last seen dur­ing the global fi­nan­cial cri­sis – though it has clawed back some losses in re­cent ses­sions on hopes that Sino-US trade ten­sions may ease.

The yuan fell 1.5% against the dol­lar in Oc­to­ber, its sev­enth straight monthly loss.

Pol­icy sources have told Reuters that China is likely to use its vast re­serves to stop any pre­cip­i­tous fall through the 7 level as it could risk trig­ger­ing heavy cap­i­tal out­flows.

Re­cent Chi­nese data have pointed to ris­ing out­flows.

But so far there have been no signs of a wide­spread flight of funds like that in 2015, due largely to cap­i­tal con­trols put in place since then.

Sales of net for­eign ex­changes by Chi­nese com­mer­cial banks rose to the high­est in Septem­ber since June 2017.

Cap­i­tal Eco­nom­ics, in a note to clients af­ter the lat­est data, es­ti­mated that the PBoC sold around $14bn of re­serves last month, af­ter $17bn in Septem­ber. “Its in­ter­ven­tion re­mains small in scale and seems cal­i­brated to slow the ren­minbi’s fall rather than stop it.”

The yuan, which has lost just over 6% of its value to the dol­lar so far this year, is ex­pected to weaken fur­ther as au­thor­i­ties ease pol­icy to sup­port the slow­ing econ­omy.

That could see Bei­jing use up more re­serves to pre­vent any steep de­clines in the cur­rency which could rat­tle global fi­nan­cial mar­kets and draw more crit­i­cism from Wash­ing­ton.

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