China FX reserves plunge to lowest level since Feb 2013

08/12/2015 08:08 AST

China’s foreign exchange reserves, the world’s largest, fell by $87.2 billion in November to $3.44 trillion, central bank data showed on Monday, the lowest level since February 2013 and the third largest monthly drop on record.

Analysts blamed the fall partly the dollar’s rally during November, which reduced the value of non-dollar reserves, and partly on China’s central bank selling dollars to support the yuan.

The onshore yuan is down over 3 per cent so far this year, and remains under pressure as investors expect US interest rates to be increased for the first time in around a decade later this month.

The fall in foreign exchange reserves was the biggest since a record monthly drop of $93.9 billion in August. China’s FX reserves have declined for the last five quarters and posted a record quarterly fall in the third quarter.

“The pick-up in capital outflows appears to have been predominately driven by increased expectations for renminbi (yuan) depreciation,” Julian Evans-Pritchard at Capital Economics said in a note.

“A rise in offshore interest rates due to the increased likelihood of a December Fed rate hike will also have added to outflow pressures.” China’s surprise devaluation of the yuan on Aug. 11 fueled a wave of capital outflows on fears the world’s second-largest economy might be slowing more sharply than thought, and on worries of a possible interest rate rise by the US Federal Reserve.

The yuan’s depreciation has been even more marked in the offshore maket, where it has lost over 4 per cent this year.

Trading at 6.47 per yuan dollar, the offshore rate is at its widest discount to the onshore closing rate since September, indicating enduring bearishness.

Zhou Hao, economist at Commerzbank in Singapore, wrote in a reaserch note that the Peoples Bank of China has switched strategies to manage a softening to the yuan-dollar rate instead of trying to halt it completely.

“It seems that China’s central bank has changed its strategy in market intervention,” wrote Zhou.

The Gulf Today