China FX reserve suffer biggest drop since January

Posted on November 7, 2016

China’s foreign exchange reserves have slumped to their lowest level since 2011, suffering their worst monthly decline since the start of the year amid increasing concerns over an acceleration of capital outflows in Asia’s largest economy.

Reserves at the Chinese central bank fell to $3.121trn last month, a fall of $47.5bn from September’s level and coming in a little lower than the $3.13trn predicted by economists ahead of the release.

The monthly drop is however lower than than the $100bn warned by analysts at Capital Economics but is evidence of renewed signs of stress facing Chinese policymakers after the renminbi weakened by the most since August’s mini-devaluation last year in October.

Last month’s drop was the fourth consecutive month of declines for the PBoC’s war chest.

Julian-Evans Pritchard at Capital Economics said much of the fall can be attributed to valuation shifts on the back of a strong dollar rather than an accelerated central bank intervention:

The decline is the biggest since the start of the year but should not be as alarming as might first appear. Valuation effects due to last month’s strengthening of the US dollar and fall in global bond prices will have played a large part

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