Feb. 20 (Bloomberg) -- The Chinese central bank bought more foreign exchange than it sold for the first time in four months in January, spurring speculation capital flowed back to Asia’s largest economy.
Yuan positions at financial institutions accumulated from foreign-exchange purchases increased to 25.5 trillion yuan ($4.1 trillion) as of the end of January, up 141 billion yuan from the previous month, People’s Bank of China data released today show.
Forward contracts on the yuan have strengthened this year on speculation the government’s easing policy will help shore up the economy and the European sovereign debt crisis will ease. The People’s Bank of China cut the amount of cash that lenders must set aside as reserves by half a percentage point to 20.5 percent over the weekend, effective Feb. 24.
“The rise in foreign-exchange purchases, coupled with the somewhat surprising reserve-ratio cut, should support China-related market sentiment this week,” Lu Ting, a Hong Kong-based economist at the Merrill Lynch unit of Bank of America Corp., wrote in a report today.
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