China’s forex reserves rise USD 3.21 trillion

China’s foreign exchange reserves rose for a second straight month in April to USD 3.2197 trillion, as fears about a weak yuan and capital outflow eased amid increasing signs of stabilising economic growth.

The foreign exchange reserves rose USD 7.1 billion from March to USD 3.2197 trillion in April, beating market expectations of 3.20 trillion, official media reported today.

Today’s data also showed China’s gold reserves reached USD 74.75 billion at the end of April, up from USD 71.48 billion in March.

This marked a second month of increases following the unexpected rise in March that put an end to a falling streak since November, data from the People’s Bank of China said.

“A second month of rising reserves shows fears of cascading capital outflows are disappearing into the rear view mirror,” state-run Xinhua news agency said, citing a research note by Bloomberg economists Tom Orlik and Fielding Chen.

Until recently, concerns about capital outflows had been on the rise as the economy slowed and the Chinese currency had fallen since China revamped its forex mechanism last year.

But resumed stability in international financial markets and positive signs in the domestic economy have reduced the pressure of capital outflow since the start of this year.

The Bloomberg economists attributed the relative stability in the reserves to a stable yuan, which dropped 0.38 per cent against the US dollar over the month, and rising property prices and stable equity markets that have given speculators a domestic asset to park their wealth in.

Signs of returning life in the real economy and policymakers’ assurance on yuan stability also played a role.

The strength of the US dollar has been weakening following the dovish stance of the US Federal Reserve, enabling the yuan to hold steady.

On the domestic front, increasing signs of firming recovery in China’s economy also supported the currency’s strength.

However, the Bloomberg economists pointed out that as anticipation of a Fed move builds dollar strength in the months ahead, China’s central bank will face the more difficult task of managing the yuan without triggering a fresh round of market panic and capital exit.

They forecast the yuan will end 2016 at 6.67 against the US dollar.