Mainland forex regulator warns of big swings in capital flows
Foreign exchange regulator says sharp changes in speculative capital movements may undermine the country's economic recovery
The mainland should be prepared for big swings in speculative capital flows amid global economic uncertainties, the country's foreign exchange regulator said yesterday.
The State Administration of Foreign Exchange said the country could face pressure from large-scale hot money inflows as the economy got back on track and major economies persisted with loose monetary policies and low interest rates to fuel recovery.
The risk elements brought about by large capital outflows could not be ignored as the nation's recovery was not yet complete, the regulator said. "We should actively prevent big swings in either direction."
Net capital outflows in the first three quarters of last year exacerbated the mainland's economic slowdown while fears of inflation were sparked as inflows recovered in the fourth quarter.
Foreign exchange reserves increased by US$128.9 billion last year, the smallest rise since 2004. Trade surplus and net foreign direct investment together amounted to US$265.6 billion, pointing to substantial capital outflow last year.
Expectations of greater trade surplus, positive net foreign direct investment and "a likely drop in capital outflows" should "keep pressure on the yuan to appreciate" this year, said Igor Arsenin, an analyst at Barclays Capital.
Last year, banks bought US$1.57 trillion in foreign currencies and sold US$1.46 trillion, SAFE said.