Chinese banks bought more foreign currency than they sold for clients in January, making net purchases of $92.6 billion in foreign exchange in over-the-counter transactions, according to Reuters calculations of official data. It marked a sharp increase from a net purchase of $54.3 billion in December, the fifth straight month of net purchases, adding to signs of increased capital inflows as the world's second-largest economy recovers.
Chinese banks were also net buyers of $9.4 billion in the forwards market in January, according to data from the State Administration of Foreign Exchange (SAFE) on its website, www.safe.gov.cn. "The data points to unusually large market demand for the yuan, as well as very substantial (central bank) interventions to absorb it and to prevent the yuan from breaching its daily trading band," Dariusz Kowalczyk, senior economist and strategist for non-Japan Asia at Credit Agricole CIB in Hong Kong, wrote in a note to clients.
China has the world's largest foreign exchange reserves, standing at $3.31 trillion at the end of 2012, accumulated as a function of the country's capital controls which saw exporters and investors sell dollars to Chinese banks, which in turn sold most of them to the central bank.
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