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China buys US$22b in forex on funds inflow
Source: Agencies |
February 21, 2012, Tuesday
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Print Edition
Print Edition
CHINA bought 140.9 billion yuan (US$22 billion) in foreign exchange in January as capital flowed back into the country after three consecutive months of net outflows, but analysts said the outlook was volatile.
"It's hard to say whether such a monthly size of capital inflows can be sustained in the coming months," said Shao Yu, an economist with Orient Securities.
"If European debt problems worsen, hot money may flee emerging markets. In short, we believe China will see net capital inflows in 2012, but the size would be small," he added in Shanghai.
China's central bank and commercial lenders bought 140.9 billion yuan in January, according to Reuters calculations based on data published by the People's Bank of China yesterday, after net sales of 100.3 billion yuan in December.
The volume of buying in January was smaller than the average monthly 231.6 billion yuan in 2011 and 272.4 billion yuan in 2010.
Smaller capital inflows mean less liquidity for the banking system, requiring domestic credit creation to maintain money supply growth at the government's target rate, and is likely a key reason for China's move to cut banks' reserve requirement ratios by 50 basis points, announced last Saturday, to 20.5 percent.
The People's Bank of China said in its quarterly monetary policy report last week that it had noticed the reappearance of capital inflows, but added it would monitor if the inflows are sustained.
China's new yuan bank loans stood at 738.1 billion yuan, a number that was well below market expectations of 1 trillion yuan. Chinese media reported that state bank lending in the first half of February remained sluggish.
"It's quite clear that the central bank would continue to cut reserve requirement ratio if capital inflows are small - the ratio is one of the key tools of the central bank to adjust liquidity," Shao said.
The State Administration of Foreign Exchange had forecast an international payment surplus in 2012.
"It's hard to say whether such a monthly size of capital inflows can be sustained in the coming months," said Shao Yu, an economist with Orient Securities.
"If European debt problems worsen, hot money may flee emerging markets. In short, we believe China will see net capital inflows in 2012, but the size would be small," he added in Shanghai.
China's central bank and commercial lenders bought 140.9 billion yuan in January, according to Reuters calculations based on data published by the People's Bank of China yesterday, after net sales of 100.3 billion yuan in December.
The volume of buying in January was smaller than the average monthly 231.6 billion yuan in 2011 and 272.4 billion yuan in 2010.
Smaller capital inflows mean less liquidity for the banking system, requiring domestic credit creation to maintain money supply growth at the government's target rate, and is likely a key reason for China's move to cut banks' reserve requirement ratios by 50 basis points, announced last Saturday, to 20.5 percent.
The People's Bank of China said in its quarterly monetary policy report last week that it had noticed the reappearance of capital inflows, but added it would monitor if the inflows are sustained.
China's new yuan bank loans stood at 738.1 billion yuan, a number that was well below market expectations of 1 trillion yuan. Chinese media reported that state bank lending in the first half of February remained sluggish.
"It's quite clear that the central bank would continue to cut reserve requirement ratio if capital inflows are small - the ratio is one of the key tools of the central bank to adjust liquidity," Shao said.
The State Administration of Foreign Exchange had forecast an international payment surplus in 2012.
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