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China Foreign Exchange Reserves Rise for First Time in Five Months

Updated on
  • The hoard rose by $10.3 billion to $3.21 trillion last month
  • PBOC also released data denominated in SDR for first time

China’s foreign-exchange reserves unexpectedly increased in March after capital outflow pressure eased as the nation’s currency steadied.

The world’s largest currency hoard rose by $10.3 billion to $3.21 trillion last month, the People’s Bank of China said in a statement Thursday. That compared with the $6.3 billion decrease expected by economists surveyed by Bloomberg, who had a median projection reserves would fall to $3.196 trillion.

Authorities have stemmed a record tide of departing money with stricter currency rules and repeated statements they don’t want a big devaluation in the yuan. They’ve been helped by a weaker greenback after the U.S. Federal Reserve scaled back projections for the number of interest-rate increases it’s expecting this year.

The unexpected rise was due to "the weakening dollar, the capital outflow curbs, and the recovery of the Chinese economy since March due to massive fiscal and monetary easing," said Shen Jianguang, chief economist at Mizuho Securities Asia Ltd. in Hong Kong. "The PBOC will maintain capital outflow restrictions."

The PBOC also released the reserves denominated in Special Drawing Rights for the first time as Governor Zhou Xiaochuan pledged to help broaden the use of the currency basket last month in Paris. The hoard was at SDR2.28 trillion at the end of March.

IMF Basket

The yuan will be added to the International Monetary Fund’s SDR basket, which is composed of the dollar, euro, yen and pound, later this year. Zhou also said that China is looking into issuing SDR-denominated bonds in the same speech.

While the foreign-exchange reserves rose for the first time since October, this may not be the turning point for capital outflows, according to Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong.

"The flip side is if we see the dollar strengthen again later this year in anticipation of a Fed rate hike, capital outflows could return,” Hu said. “This year will be very choppy."

— With assistance by Xiaoqing Pi

(Updates to add economist's comment in fourth paragraph.)
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