Interest-Rate Increases on China Capital Flows Has Reduced -Regulator

Interest-Rate Increases on China Capital Flows Has Reduced -Regulator

The central parity rate of the yuan weakened 128 basis points to 6.8792 against the USA dollar Thursday, according to the China Foreign Exchange Trade System. In January, reserves slipped below the US$3 trillion mark.

Banks bought US$145 billion worth of foreign currencies and sold US$156.6 billion, resulting in net sales of US$11.6 billion last month, according to the State Administration of Foreign Exchange.

China's capital-outflow pressure eased notably in the first quarter, thanks to improving domestic economic performance and a weakening US dollar, Ms. Wang said. "Supply and demand of foreign currencies have become more balanced", said SAFE spokeswoman Wang Chunying.

This was done to shore up the Chinese yuan after it fell by 6.5% against the USA dollar in 2016, extending its decline over the past three years to 13%.

China's improving economy has helped support the currency even as the USA central bank raises interest rates, Wang said.

The authorities have stepped up compliance scrutiny but the country's foreign-exchange policies haven't changed, she said. Chinese Premier Li Keqiang has said that market confidence in the yuan had "significantly improved".

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Sources told Reuters on Wednesday that China's central bank has relaxed some of the curbs on cross-border capital outflows, the first signs of easing of measures put in place past year as authorities and financial markets feel more confident that pressure on the yuan has eased.

Starting in late 2016, and enhanced further at the start of this year, the PBoC introduced measures making it harder for individuals and companies to move money out of China, particularly for what it deemed to be "irrational" investment in property, entertainment, sports and other sectors.

In the January-March period, banks' net forex sales stood at 40.9 billion US dollars, down 67 percent from a year ago.

Non-financial outbound direct investment from China tumbled 48.8 percent in the first quarter year-on-year, with dealmakers saying many Chinese firms are unable to close deals because they can not secure official permission to transfer yuan into foreign currency.

Cross-border capital flows will continue to head for equilibrium due to China's solid economic fundamentals and strong appeal to overseas investors, Wang said.

So far this year, the yuan is up by around 1% against the United States dollar.

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