Published: Sat, October 08, 2016
Economy | By Melissa Porter

China's offshore yuan falls to nine-month low vs dollar

China's offshore yuan falls to nine-month low vs dollar

China's foreign-exchange reserves declined more than expected in September, amid speculation the central bank resumed selling dollars to support the yuan. The size of the reserves stood at the lowest level since May 2011, when they totaled $3.1660 trillion. However, while September's $18.8 billion drop was small compared with overall reserves, it was larger than a decline of $15.89 billion in August and was the biggest in four months. It was also far in excess of the $11 billion fall markets had been looking for before the data, according to a survey of economists reported by The Wall Street Journal.

"There is still definitely some vulnerability on the capital flows side, and obviously that has implications for the currency".

The intervention may have stopped the rot for now but some economists reckon that with capital outflows showing little sign of slowing, with the outlook for the dollar looking brighter and with the yuan now a member of the International Monetary Fund special drawing rights basket, pressure on the People's Bank of China to continue intervening will decrease. "But in the short run, a Chinese free float would put downward pressure on commodity prices and global inflation and increase headwinds to United States exports and the manufacturing sector".

China foreign exchange reserves fell for the third consecutive month in September suggesting that capital outflows from the world’s second largest economy could have picked up again
China's offshore yuan falls to nine-month low vs dollar

Traders believe the People's Bank of China (PBOC) has stepped in via state-run banks since July to slow the pace of depreciation in the yuan, which has weakened 2.7 percent against the USA dollar so far this year.

The PBOC has been suspected of stepping up currency intervention to stabilize the yuan before a Group of 20 meeting in China last month and leading up to the yuan's inclusion in the International Monetary Fund's Special Drawing Rights on October 1.

Meanwhile, gold reserves increased to $78.2 billion in September from $77.18 billion in August.

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