China’s foreign exchange reserves fell to their lowest level in almost three years in November, official data showed yesterday, with analysts blaming “record” capital outflow on expectations the yuan will depreciate. In the third quarter of 2015, forex reserves fell by $180 billion, much more than the $40 billion decrease in the second quarter, a fifth consecutive quarterly drop.
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The Wall Street Journal reports that the PBOC said its “foreign-exchange reserves declined by $87.22 billion from a month earlier to $3.438 trillion at the end of November”.
All but one of the primary dealers, brokerages that deal directly with the US Federal Reserve, believe the Fed is going to raise rates at the end of its December 16 meeting, according to a Reuters poll.
The yuan’s depreciation has been even more marked in the offshore maket, where it has lost over 4 percent this year. Beijing keeps a grip on currency flows and the yuan can only move up or down against the United States dollar by 2 percent from a mid-rate set daily by the People’s Bank of China. “Dollar demand in the market was higher than supply as investors expected the dollar to strengthen further”, said a trader at a Chinese commercial bank in Shanghai. Before that, reserves declined for five-consecutive months from May to September.
Today’s FX reserves data suggest that capital outflows picked up sharply last month, leading the People’s Bank (PBOC) to resume selling FX in order to prop up the value of the renminbi.
Meanwhile, Evans-Pritchard predicted that China will not allow a significant weakening in the yuan going forward despite the currency’s inclusion in the International Monetary Fund’s Special Drawing Rights basket.
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By Evans-Pritchard’s reckoning, net capital outflow from China totaled $113 billion, compared with $37 billion in October.
