Why PBOC’s halt in currency intervention may be temporary
China’s foreign exchange reserves edged higher to US$3.009 trillion at the end of March, from US$3.005 trillion a month earlier
The People’s Bank of China (PBOC) , the central bank, largely suspended currency intervention last month. However, that may be temporary, according to analysts, and the yuan could start depreciating again in response to a renewed rally in the US dollar.
China’s foreign exchange (FX) reserves edged higher to US$3.009 trillion at the end of March, from US$3.005 trillion a month earlier, according to the latest official statistics, which marks the first time in almost a year they have risen for two straight months.
“At face value, then, the relative stability of the headline reserves figure suggests that after selling FX to prop up the renminbi for 16 straight months, the PBOC largely halted its intervention in March,” said Julian Evans-Pritchard, China economist for Capital Economics.
He added valuation effects should be “fairly neutral” last month, as a fall in bond prices has offset the impact of a weaker US dollar and boosted the value of the portion of the reserves held in other currencies.
Also behind the shift is a moderation in capital outflows.
“Outflows have shrunk considerably since late last year and now appear small enough to be mostly offset by the trade surplus, ” said Evans-Pritchard, a view shared by Wei Yao, an analyst with Societe Generalem who added year-on-year declines in banks’ net FX sales and net cross-border payments looked much more sizeable than seasonally usual, too, in January and February.