Beijing: China’s foreign exchange reserves rose by the most in four months in March, suggesting a renewed appetite from overseas investors for bets on yuan appreciation.
Holdings jumped $22.5 billion (Rs99,900 crore) last month, after gaining $9.4 billion in February and $16 billion in January, data posted on the central bank’s website showed on Monday.
“There is a clear sign of renewed hot-money inflows, as the yuan appreciation story seems to have revived,” said Tao Dong, a Hong Kong-based economist at Credit Suisse Group AG. “Such inflows will make it more difficult for the central bank when it wants to tighten policies.”
Speculation intensified this month that China will scrap the yuan’s 21-month-old peg to the dollar as the global economy recovers and Chinese officials seek to damp inflation. Standard Chartered Bank Plc and ANZ Banking Group Ltd analysts agreed that Monday’s data signalled hot money inflows accelerating.
Non-deliverable yuan forwards rose by the most this year on 8 April after The New York Times reported that the Chinese government is very close to changing its exchange rate policy after keeping the yuan at about 6.83 per dollar since July 2008.
The currency reserves climbed by about $47.9 billion in the first quarter to a record $2.447 trillion. That was smaller than the $127 billion increase in the previous three months, after the trade surplus shrank and a stronger US currency cut the dollar value of assets in other currencies, such as the euro.
In March, China posted a $7.2 billion trade deficit.
The apparent increase in capital inflows at the end of the first quarter remains below a peak in the first half of 2008 when the yuan was appreciating steadily, said Ben Simpfendorfer, Hong Kong-based chief China economist at Royal Bank of Scotland Group Plc. At the current level, the central bank retains room to manoeuvre in its currency policy, he said.
China does not yet appear to be facing a flood of inflows that might force it into a faster-than-expected pace of appreciation, he said.
Li Wei, a Shanghai-based economist at Standard Chartered, said Monday’s data suggested that $22 billion of hot money flowed into China in March after net outflows of $12 billion in February and $9.4 billion in January.