China’s FX Reserves Rose Again in December Amid Yuan Rally

(Bloomberg) -- China’s foreign currency holdings rose for a second month, countering concerns over capital outflows amid a slowing economy and trade pressures.

  • Reserves increased to $3.073 trillion in December from $3.062 trillion the previous month, the People’s Bank of China said Monday. That slightly exceeded the median estimate of $3.072 trillion.
China’s FX Reserves Rose Again in December Amid Yuan Rally

Key Insights

  • "The dollar weakened in December, boosting the valuation of yen and euro assets," said Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing who was the most accurate forecaster.
  • Without that valuation effect, reserves would have fallen $2.5 billion, according to Bloomberg Economics calculations.
  • Depreciation pressure on the yuan has weakened slightly, with the market now expecting the Fed to slow its pace of rate hikes, Bloomberg economists wrote in a note on Jan 4. As a result, the People’s Bank of China may have slowed its intervention in the FX market, they wrote.
  • China’s international balance of payments continued to be stable in December, the State Administration of Foreign Exchange said in a statement. Non-dollar currencies appreciated slightly against the dollar at the end of the year, and prices of bonds of major countries have increased. Combined with factors like exchange rate conversion and asset price changes, the foreign exchange reserves recorded a small increase, SAFE said.

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  • SAFE also promised last week to advance foreign exchange reforms in 2019, including the improvement of a management framework for cross-border capital flows.

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