China foreign-exchange reserves drop as yuan pressures build

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Baku, October 7, AZERTAC

China's foreign-exchange reserves declined more than expected in September, amid speculation the central bank resumed selling dollars to support the yuan, according to Bloomberg.

The stockpile shrank to $3.17 trillion last month, the People's Bank of China said in a statement Friday. That's the lowest since April 2011 and below the median estimate of $3.18 trillion in a Bloomberg survey of economists. The decline is a reflection of both currency intervention and capital outflows, according to Zhao Yang, Nomura Holdings Inc.'s chief China economist.

Declines in the world's biggest currency stockpile have slowed this year after falling from a record $4 trillion in June 2014 amid speculation the yuan would continue to depreciate and the Federal Reserve would raise borrowing costs. Investors are pricing in a 63 percent probability that the Fed will raise interest rates by year-end, according to Fed funds futures prices tracked by Bloomberg.

"The drop shows that yuan depreciation pressures remain intact despite the PBOC's efforts to stabilize the currency," said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd. "The likelihood of a Fed interest-rate increase in December -- as the U.S. economy improves -- is adding to the stress."

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