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Free AccessFading Depreciation Worries Fuel China FX Reserve Rise in Sept
BEIJING (MNI) - China's foreign-exchange reserves increased for the eighth
straight month in September, helped by the positive yuan valuation effect and a
greater volume of forex sales.
Foreign-exchange reserves increased $16.98 billion during the month to
$3.1085 trillion, the highest level since last October and significantly higher
than the $10.81 billion rise in August, according to data from the State
Administration of Foreign Exchange (SAFE).
The valuation effect contributed to the rise, SAFE said.
"In September, cross-border capital flows and transactions became more
stable and balanced," SAFE said on its official website on Monday. "In the
international financial market, the exchange rate and asset prices have had
divergent performances, and foreign-exchange reserve investments in general
appreciated, pushing up the level of foreign-exchange reserves.
A greater volume of forex sales also contributed to the rise of foreign
reserves, analysts said.
"In the first 10 days of September, the yuan appreciated against the
dollar, spurring enthusiasm to exchange foreign currencies for yuan," Liu Jian,
senior analyst at Bank of Communications, said on Monday. "Although the yuan
depreciated afterward, foreign-exchange selling remained strong" given the
yuan's recent overall strength and China's high trade surplus, Liu said.
A Shanghai-based foreign-exchange trader at a commercial bank told MNI that
foreign-exchange selling was strong in the first half of September, while forex
purchases dominated during the rest of September, generally in line with the
trend of the exchange rate of the yuan, which strengthened from 6.5969 on Aug.
31 to 6.4617 on Sept. 8, and then reversed course to reach 6.6470 on Sept. 29.
SAFE expects the forex reserve situation to remain stable in the future.
"As the Chinese economy will remain stable, tending toward positive, and
financial regime reforms will deepen and the financial sector will open up
further, the market expectations will be more stable, and the foundation for
stable cross-border capital flows will be even firmer," SAFE said.
Some analysts said it is possible forex reserves could drop slightly, but
not precipitously, in the future.
"As the valuation effect becomes weaker and the yuan begins to fluctuate,
the pressure on foreign-exchange reserve will be higher," Shenwan Hongyuan
Securities said on Monday. "However, as domestic corporates have paid a large
amount of their foreign currency-denominated debts, and the one-sided
expectations for the yuan to depreciate have been broken, the market will treat
yuan fluctuations more rationally."
"It is almost totally impossible for foreign-exchange reserves to drop
significantly," Shenwan Hongyuan Securities added.
--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com
--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com
[TOPICS: MAQDS$,M$A$$$,M$Q$$$,MT$$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.