China's foreign exchange reserves fell the most in nine months in October and by far more than expected to the lowest since March 2011, indicating further capital outflows despite recent signs the world's second-largest economy is stabilising. Reserves fell $45.7 billion last month to $3.121 trillion, the biggest monthly decline since January, compared with a near $19 billion fall in September, central bank data showed on Monday.
The October drop was the fourth in a row, and exceeded the previous three months combined, though analysts said a surging US dollar may have accounted for much of the move. Economists polled by Reuters had predicted a decline of around $26 billion to $3.14 trillion from $3.166 trillion at end-September, a five-year low. The central bank is widely believed to have sold US dollars to cushion the yuan currency's descent in October as it fell to six-year lows.
"The biggest decline in China's FX reserves since the start of the year has more to do with valuation effects than increased intervention," Capital Economics said in a note. China also may have suffered losses on its investments in US Treasuries and debt in other developed countries, some analysts said. "The pressure on the yuan remains big as we approach the US rate-hike window in December," analysts at Haitong Securities said in a note.
The People's Bank of China (PBOC) had sold a net 337.5 billion yuan ($50.1 billion) worth of foreign exchange in September, as it sought to support the weakening yuan as outflows picked up. Persistent capital outflows could raise pressure on the PBOC to cut banks' reserve requirement ratio (RRR), but analysts believe the central bank is trying to use other policy tools, such as the medium-term lending facility and standing lending facility, to inject cash into the banking system. China's reserves, the largest in the world, fell by a record $513 billion last year after Beijing devalued the yuan, sparking a flood of capital outflows that threatened to destabilise the economy and alarmed global financial markets.