PBOC's Forex Data Change Creates Unnecessary Angst, Mizuho Says

  • January report only showed the central bank's forex position
  • PBOC could improve communication with the market: Mizuho

The People’s Bank of China should have explained the change in its reporting of foreign-exchange holdings to avoid market speculation on its motives, according to Mizuho Securities Asia Ltd.

“The PBOC changed the category of the position of forex purchases in its monthly report in January,” a move that “immediately raised market concerns about possible concealment or manipulation of foreign-exchange data,” Mizuho economists led by Hong Kong-based Shen Jianguang wrote in a report Monday. “While the change is technical and actually intended to reduce confusion over the central bank’s currency defense transactions, poor communication about the definition change spooked some investors.”

The monthly data sheds light on the scale of the central bank’s intervention to support the yuan. The currency slumped to a five-year low last month, roiling global financial markets and prompting the PBOC to step up efforts to prop up the exchange rate amid record capital outflows. China used intervention, verbal warnings and a tightening of capital controls in its bid to quell speculative attacks on the yuan in the offshore market in January.

The forex purchases by commercial banks were recategorized into another item, namely shares and other investments, in January’s report, Shen and Michael Luk wrote in their note. The central bank used to release two sets of positions for forex purchases, one for the PBOC’s holdings and the other for all financial institutions.

‘Elevated Criticism’

“When capital outflow is already a concern, ignoring the impact of this change on market sentiment could feed existing skepticism over China’s financial stability,” the Mizuho economists wrote. “We note this is a sensitive time for this change and the situation was worsened by the PBOC’s lack of response to media requests for comment on Friday.”

The monetary authority didn’t immediately respond to a fax Monday seeking comments.

“The data confusion will, we think, sustain elevated criticism of China’s economic policy transparency going into this weekend’s Group of 20 meeting” of central bankers and finance ministers, said Tim Condon, head of Asian research at ING Groep NV in Singapore. Policy communication could be a topic during the gathering “because China and the U.S. are the countries that matter most today for global financial markets,” he said.

— With assistance by Tian Chen

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