China’s June forex reserves unexpectedly rise to $3.21 trillion

The central bank reaffirmed that it would keep the yuan exchange rate basically stable at “a reasonable and balanced level” while improving the exchange rate formation mechanism.

Economists surveyed by Bloomberg expected reserves to come in at $3.17 trillion, in part because of the weaker pound and euro post-Brexit.

“Market sentiment for the yuan will continue to weaken in the second half as risk aversion prevails”.

China’s economy grew at its slowest rate in a quarter century past year, and a gauge showed activity in Chinese factories suffered its sharpest deterioration for four months in June.

The rule applies to foreign banks that conduct foreign exchange forward sales in offshore markets and offset the trade by tapping China’s onshore market.

Meanwhile, Reuters’ Elias Glenn and John Ruwitch quoted Sue Trinh, Hong Kong-based head of Asia FX strategy at the Royal Bank of Canada, who said: “Capital outflows have been continuing at pace and they are a lot larger than what the authorities would have us believe through the official data”. It said on Wednesday the dividend payment in June and strong outbound acquisition by Chinese companies pushed up demand for foreign exchange and drove down the yuan’s value against a basket of currencies.

At the end of September 2015 the yuan had not figured in the central bank’s foreign currency assets, but the bank said on July 4 that by the end of 2015 the yuan accounted for 0.1 percent of its reserves.

That suggests that China will begin to run down its reserves again in the near future, to avoid more rapid depreciation, analysts said.

The yuan’s fall has been exacerbated by Britain’s shock vote last month to leave the European Union, which battered most emerging currencies, but the renminbi’s weakness has also revived memories of China’s surprise devaluation last August and another rapid depreciation early this year.