China's forex reserves slump

Business | Reuters and Tracy Hu 8 Mar 2018

China's foreign exchange reserves fell in February, posting their first decline in 13 months, as the yuan weakened against the US dollar amid wild swings in global financial markets.

Reserves fell US$27 billion (HK$211.59 billion) to US$3.134 trillion, compared with an increase of US$21.5 billion in January, central bank data showed yesterday.

The central parity rate of the yuan strengthened 92 basis points to 6.3294 against the US dollar yesterday.

The yuan strength came after the dollar index, which tracks the greenback against a basket of other major currencies, touched a two-week low on Tuesday.

The State Administration of Foreign Exchange said adjustments in the value of China's holdings of non-dollar currencies and assets led to the decline for the month, adding that the size of its foreign exchange reserves will remain basically stable.

Capital flight was seen as a major risk for China at the start of 2017, but a combination of tighter capital controls and a faltering dollar helped the yuan stage a strong turnaround, restoring confidence in the economy.

China's reserves rose for the first time last year since 2014. They had slumped nearly US$1 trillion to US$2.998 trillion by January 2017 as authorities sought to shore up the yuan and reduce potentially destabilizing capital outflows.

Last year was a turning point as China's cross-border capital flows went from net outflows to stable, SAFE spokeswoman Wang Chunying told reporters in January.

The yuan rose around 6.8 percent against the greenback in 2017, reversing three straight years of depreciation.

The gains stretched into this year, with January's 3.5 percent rise the yuan's best monthly performance since 1994. But the currency weakened 0.6 percent to the dollar in February in its first monthly drop since September.

The People's Bank of China will need to respond to an expected rate hike from the Fed later this month, as Zhou Xiaochuan, the long-serving PBOC governor, is widely expected to be replaced during the annual meeting of parliament that started in Beijing on Monday.

Zhou will attend a press conference of the "Two-Sessions" tomorrow morning, together with PBOC deputy governor Yi Gang, PBOC deputy governor and SAFE head Pan Gong-sheng, to speak about financial reform and development.

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