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Chinese financial institutions' forex purchase position down RMB723.836 bln

2015-09-14 19:07

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Chinese financial institutions' foreign exchange (forex) purchase position by the end of August fell 723.836 billion yuan over a month earlier to 28.184444 trillion yuan, according to statistics posted on website of the People's Bank of China (PBOC), the central bank Monday. The figure, measuring trade payments received by Chinese companies and closely related to cross-border capital flows, hinted ongoing capital outflow pressures as it was lower than the PBOC's over 90 billion US dollars of forex purchase position from financial institutions in August.

Li Qilin, a fixed-income analyst of Minsheng Securities suggested that PBOC could take a series of measures such as raising forex purchase costs, direct open market operations and squeezing the spread between onshore and offshore Renminbi exchange rates to stabilize the depreciation expectations for Renminbi and reverse the capital outflow.

According to Li, it was still necessary for the PBOC to lower the required reserve ratio to smoothen liquidity and tightening the monetary policy and liquidity would bring more losses than gains for China given the following risk spread widening for Renminbi assets.

In Li's eyes, China could also offset the capital outflow risks and stabilize Renminbi's exchange rate by generating new high-yield Renminbi assets when stabilizing the economy in short term and showcase Renminbi assets' profitability through reform in the long term.

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