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Forex purchases dive as RMB expected to appreciate

Forex purchases dive as RMB expected to appreciate

(19 June 2013 – China) The People’s Bank of China (PBoC) as well as other Chinese financial institutions substantially decreased their purchase of the United States dollar in May.

Figures showed China’s banking system’s net forex purchases plunged by 340 percent, with a net US$10.9 billion (A$11.4 billion) in foreign currency bought in May compared to US$48 billion in April.

May was the sixth consecutive month of net purchase, indicating that capital continued to flow into China on expectations of a renminbi (RMB) appreciation against other currencies.

Overall, the banking system's foreign currency purchase position hit US$4.5 trillion in May, slightly higher than the US$4.46 trillion in April, said the central bank.

The data include purchases and sales by commercial banks and other financial institutions but mostly reflect transactions by the central bank.

Analysts said the figures are a proxy for inflows and outflows of foreign capital as most foreign currency entering the country is generally sold to the PBoC.

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