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October 10, 2016

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China’s forex reserves fall to 5-year low

CHINA’S foreign exchange reserves dropped around US$19 billion in September to a five-year low, government data showed, with the central bank spending heavily to defend the yuan against capital outflows.

The world’s largest currency hoard fell to under US$3.17 trillion, the People’s Bank of China said on its website on Friday, below median analyst forecasts of US$3.18 trillion in a Bloomberg News survey.

It was the third straight month of decline and brought China’s reserves to their lowest level since April 2011, Bloomberg said.

Analysts said the decline indicated China was selling foreign exchange to buy its yuan amid capital flight spurred by slowing growth in the world’s second largest economy.

The data came days after the yuan’s official entry into the International Monetary Fund’s elite SDR (Special Drawing Rights) basket of currencies.

In the months preceding the currency’s formal inclusion, China’s central bank spent “heavily” to keep the yuan’s value stable, roughly US$27 billion last month, said Julian Evans-Pritchard of Capital Economics.

But “with the inclusion of the renminbi (yuan) in the SDR basket now complete, the PBOC may no longer feel the need to intervene as heavily to counter capital outflows”, he said, adding that United States Federal Reserve rate hikes could increase depreciation pressure on the yuan in coming months.


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