China Reserves at Lowest Since 2011 as PBOC Supports Yuan

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  • Reserves dropped by $15.9 billion to $3.19 trillion in August
  • Stockpile has been stabilizing this year even as yuan weakens

China’s foreign-exchange reserves, the world’s largest foreign currency hoard, slipped to the lowest level since 2011 as the central bank continued its defense of the currency.

The reserves fell by $15.9 billion to $3.19 trillion in August, the People’s Bank of China said in a statement Wednesday. That level, down slightly but still in line with most of the readings this year, matched the median estimate in a Bloomberg survey of economists.

"The central bank is still very active in the foreign exchange market, not quite as active as at the start of the year, but still intervening pretty heavily to prop up the currency," said Julian Evans-Pritchard, a China economist at Capital Economics in Singapore. "Outflows aren’t going away."

The stockpile has slipped from a record $4 trillion in June 2014. Outflow pressures have increased again as some Federal Reserve officials have signaled that they may raise the main interest rate as early as this month.

Investors are pricing in a 24 percent probability that the Fed will raise borrowing costs at its Sept. 20-21 meeting, and 52 percent that it will act in December, Fed funds futures prices tracked by Bloomberg showed Wednesday.

The onshore yuan dropped 0.6 percent in August, while the the offshore exchange rate weakened 0.9 percent. Speculation that the PBOC sought to support the yuan ahead of a Group of 20 meeting in the eastern city of Hangzhou was fueled by a series of stronger fixings after the exchange rate weakened beyond 6.7 for the first time since 2010 in July.

Outflows were probably concentrated in the last week of August as the yuan depreciated against the dollar, and policy makers will likely continue with measures to clamp down on capital outflows, said Donna Kwok, a senior China economist at UBS Group AG in Hong Kong.

"Outflow pressures are here to stay as domestic entities and households continue to diversify further into foreign assets, either for higher returns abroad, diversification desires or renminbi depreciation expectations," Kwok said.

Reserves denominated in the International Monetary Fund’s Special Drawing Rights units fell to 2.28 trillion in August compared with 2.30 trillion in July, the data showed.