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April 25, 2014

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China banks buy more forex in Q1

CHINESE banks bought more foreign exchange than they sold in the first quarter as the inflow of foreign currencies continues although the surplus has fallen due to the yuan’s depreciation.

The banks’ net purchase of foreign exchange in China hit US$159.2 billion in the first quarter, up 57 percent from the same period of last year excluding exchange rate factors, the State Administration of Foreign Exchange said in a statement yesterday.

The surplus fell from US$73.3 billion in January to US$45.7 billion in February and then to US$40.2 billion in March, the statement said.

SAFE expects a sustained inflow of foreign exchange in the future.

Guan Tao, head of the international balance department at SAFE, said the figures indicated that foreign capital continued to flow into China and the narrowing gap revealed a more balanced foreign capital flow.

“The target of our administration is to encourage a balance in international income and expenditure,” Guan said. “The supply and demand of foreign exchange have been improving recently.”

The yuan, however, has weakened since January, and economists attributed this to the Chinese central bank’s move to squeeze out hot money and help exports.

The yuan yesterday hit 6.2509 per US dollar, the weakest since December 14, 2012. It has fallen 3.1 percent so far this year.

The People’s Bank of China in March doubled the dollar-yuan trading band to 2 percent on each side of the central parity rate, allowing the yuan to fluctuate more.

Guan said China’s slower economic growth, weak trade and emergence of credit defaults have hurt confidence in the yuan while the exit of quantitative easing measures in the US has driven up the exchange rate for the greenback.




 

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