China forex reserves fall nearly Dollars 100 bn in January

The Chinese yuan will slide to a multi-year low in the coming 12 months based on expectations of more monetary policy easing, continued outflows of capital and further pressure from a relatively strong dollar, according to a Reuters poll.

The decrease was milder than a month-on-month decline of 108 billion dollars registered in December which was the sharpest monthly fall on record data from the People’s Bank of China (PBOC) showed. The stockpile fell by more than half a trillion dollars in 2015, the first-ever annual drop.

The $3.23 trillion China has left “still represents a substantial war chest”, said Rajiv Biswas, chief Asia-Pacific economist at IHS Global Insight.

The People’s Bank of China (PBOC), the central bank, said Saturday it will continue its prudent monetary policy while striking a balance between tight and loose.

In the report published on the official website days before the country’s Lunar New Year holidays, the central bank said it also seeks to implement “targeted reserve ratio cut” measures to support economic restructuring.

Previous year in August, the central bank of China suddenly devalued the yuan but it did not work out the way the Country planned and the action backfired. The currency has declined 1.24 per cent so far this year, closing at 6.5755 in Shanghai on Friday. China’s estimated 2015 total capital outflows reached United States dollars 1 trillion, according to Bloomberg. “If that occurs in the next few months, expect to see a tidal wave of speculative selling, forcing the PBoC to throw in the towel and let the market decide the level of the renminbi exchange rate”, he explained.

“Once market rates rise close to the upper limit rate, banks will look to the PBOC to inject liquidity, and thus they will not panic and hoard cash”, said Zhang Yiping, an economist at China Merchants Securities in Shenzhen.

For the year to December reserves dropped $513 billion. Recent injections have helped push China’s benchmark money market rate, the seven-day repo in the interbank market, back to a normal level of around 2.3-2.4 percent after it had briefly spiked to nearly 4 percent in mid-January.