China September central bank forex sales highest in eight months as it sought to steady yuan

October 18, 2016 4:55 AM EDT

A man walks past the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing November 20, 2013. REUTERS/Jason Lee/File Photo


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BEIJING (Reuters) - Net foreign exchange sales by China's central bank hit the highest in eight months in September as it sought to support the weakening yuan as capital outflows picked up, data indicated.

The People's Bank of China (PBOC) sold a net 337.5 billion yuan ($50.1 billion) worth of foreign exchange in September, according to Reuters calculations based on central bank data released on Tuesday.

That is the highest since January, when net sales were 644.5 billion yuan.

The rebound in the PBOC's net currency sales signaled renewed capital outflows amid expectations of an interest rate rise by the U.S. Federal Reserve in December and worries about China's growth outlook.

Still, most analysts believe the pressure remains modest due partly to stricter capital controls, unlike heavy outflows last year and in early 2016.

China's reserves, the largest in the world, fell by a record $513 billion last year after Beijing devalued the yuan, sparking a flood of capital outflows that threatened to destabilize the economy and alarmed global financial markets.

Foreign exchange reserves fell for a third straight month in September and by slightly more than markets had expected, suggesting fresh outflows.

Traders suspect authorities kept the yuan largely stable over the summer ahead of several high-profile political and market events such as the G20 leaders' summit in China in early September and the yuan's inclusion in the International Monetary Fund's reserve currency basket on Oct. 1.

But it has been allowed to slip since then against a resurgent dollar and is now hovering around six-year lows ahead of Chinese economic data on Wednesday.

Third-quarter growth in the world's second-largest economy is seen steadying at 6.7 percent on increased government spending and a property boom, but the property market is showing signs of overheating and exports remain weak.

The yuan has lost about 3.7 percent against the dollar so far this year, making it one of the worst performing currencies in Asia.

A Reuters poll earlier this month showed foreign exchange strategists expect it to depreciate by about 3 percent more by September 2017.

Persistent capital outflows could increase pressure on the PBOC to cut banks' reserve requirement ratio (RRR), but analysts believe the central bank is trying to use other policy tools, such as the medium-term lending facility and standing lending facility, to inject cash into the banking system.

The latest Reuters poll forecast a RRR cut in the first quarter of 2017.

(Reporting by Kevin Yao; Editing by Kim Coghill)



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