PBoC dealing with record capital outflows
(17 April 2015 – China) China’s central bank may be forced to intervene following data showing the nation’s foreign-exchange reserves declined in the past three months by a record US$113 billion (A$148 billion) to US$3.73 trillion.
The third-straight quarterly decline resulted in more speculation the People’s Bank of China (PBoC) sold holdings to support the yuan as money flowed out of the world’s second-largest economy.
Capital outflows are said to be exacerbated by an advancing dollar and weak economic outlook, this may force the Bank to buy more of its own currency to offset weakness – a move it has avoided as it tries to keep the yuan competitive.
In the past six months the PBoC cut benchmark interest rates twice and reduced the amount of reserves banks have to set aside.
In March PBoC governor Zhou Xiaochuan said China’s economic expansion had slowed a little sharply, meaning the central bank has room to act with interest rates and quantitative measures.
In a statement, PBoC statistics chief Sheng Songcheng wrote the two rate cuts have lowered bank loan interest rates to 6.32 percent at the end of March, down 12 basis points from December.
A large number of off-balance sheet financing activities are moving on to banks’ books, reducing financial risks, Sheng wrote.
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