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 on Friday. 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 six-year 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 destabilise 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.
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Tentative signs of stabilisation 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.