China's foreign exchange reserves rose in October for a ninth straight month, but at a slower pace than market expectations, as tighter regulations and a stronger yuan continued to discourage capital outflows.
Capital flight had been seen as a major risk for China at the start of the year, but a combination of tighter controls on money moving of China and a faltering dollar helped the yuan stage a strong turnaround, bolstering confidence in the economy.
Reserves climbed by $700 million in October to $3.109 trillion, compared with an increase of $17 billion in September, central bank data showed on Tuesday.
Economists polled by Reuters had expected reserves to rise $9.5 billion last month to $3.118 trillion.
It was the first time that China's reserves have climbed for nine months in a row since June 2014, and brought its stockpile -- the world's largest -- to the highest since October last year.
China economist at Capital Economics, Julian Evans-Pritchard, said he believed the small rise in China's foreign exchange reserves last month masked a pick-up in foreign exchange purchases by the People's Bank of China (PBOC).
"While we suspect that the PBOC is keen to intervene in both directions to create uncertainty over the short-run trajectory of the currency, we don't think it is attempting to resist appreciation over the medium term and don't anticipate a return to large scale FX accumulation," he said in a note.
The PBOC has "basically exited" from its regular yuan intervention as the currency has recently become more stable, said Pan Gongsheng, head of the State Administration of Foreign Exchange (SAFE), while reiterating the long-held stance that authorities will increase two-way fluctuation of the yuan.
The State Administration of Foreign Exchange, said in a statement that appreciation of non-dollar currencies against the U.S. dollar and rising asset prices kept China's foreign exchange reserves basically stable in October.
China's foreign exchange supply and demand were basically balanced in October, the foreign exchange regulator said.
TIGHTER OUTFLOW CURBS
China has tightened rules on moving capital outside the country since late 2016 as it sought to support the yuan and stem a slide in its foreign exchange reserves.
Beijing burned through nearly $320 billion of reserves last year but the yuan still fell about 6.5 percent against the surging dollar, its biggest annual drop since 1994.
However, the yuan has rebounded this year, belped by a reversal in the dollar and a further widening of Beijing's forex controls, including a clampdown on some overseas acquisitions which are suspected of being used to bypass capital controls and move money offshore.
The yuan has gained about 4.9 percent against the U.S. dollar so far this year.
Taken together, the regulatory measures, exchange rate forces and a stronger trade surplus may have brought China's capital flows roughly into balance for the first time in years.
Both the PBOC and commercial banks recorded net purchases of foreign exchange in September, the first time in nearly two years, suggesting a major policy victory for authorities after a long battle to stabilize the country's currency.
China will fend off any impact from disorderly and intensified cross-border capital movements and safeguard stability of its foreign exchange market, SAFE said in October, adding that it will look to preserve and increase the value of its forex reserves.
The value of gold reserves fell to $75.238 billion at end-October, from $76.005 billion at end-September, PBOC data also showed.
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