China has spent about $ 32 billion in foreign exchange reserves to strengthen the renminbi in October, the toughest monthly intervention in almost two years in the latest sign of the Beijing nervous economy.
Data released on Wednesday softened the concern that Beijing intends to implement devaluation of the exchange rate as a weapon in its trade war with the United States. But it also highlights the dilemma faced by the central bank in China, as it seeks exchange rate stability without draining reserves.
Some analysts believe that authorities do not want the wave to weaken above Rmb7.0 per dollar, which some consider as a psychological threshold. Onshore renminbi closed on Rmb6.93 dollar on Wednesday.
The central bank also wants to keep the forex reserve above 3 tons, leaving the National Bank of China less fledged power to defend the currency than in the last depreciation period.
Official foreign exchange reserves fell to $ 3,053 by the end of October of $ 3,087,000 a month earlier, PBoC said on Wednesday. Except for valuation effects, which implies an approximately $ 32 billion intervention, according to FT estimates, the largest monthly intervention since January 2017.
Iris Pang, a Greater China economist at ING in Singapore, said the monthly drop in October was small compared to the end of 2015, when the monthly decline fell to $ 70 billion over the six-month period.
"There is no capital panic in China, although USD / CNY approached 7.0", was written on Wednesday. "The USD / CNY 7.0 holder is a mere circular number rather than a psychological barrier, as the currency pair has accessed this level several times."
But the outflow of capital is accelerating. The balance of payments data released on Monday showed net outflows of $ 19 billion in the third quarter, the first quarterly outflow from the end of 2016, although in the fourth quarter this year is still far below $ 96 billion.
In mid-2014, Chinese foreign exchange reserves reached less than four hundred dollars, but over the next two and a half years the PBoC burned down nearly $ 1 billion to raise the renminbi to slow the growth of capital.
Such intervention fell sharply from the beginning of 2017 to the middle of this year, after stricter capital controls and a strong economy alleviated pressure on the renminbi. But the downward pressure has continued in recent months as the rising US dollar, triggered by rising interest rates from the Federal Reserve, coincided with the weakening of the Chinese economy and the concern that US tariffs would reduce China's trade surplus.
In the first nine months of this year, China recorded a deficit of $ 13 billion in the current account, putting the country at a standstill for its first full year deficit since 1993, according to the balance of payments data.
Still, many analysts believe that the authorities are ready to accept moderate renminbi depreciation until they engage in panic selling.
"We do not advise the central bank to intervene in the market because this currency depreciation is caused by a stronger dollar," said Li Yong, chief analyst of fixed income in the northeast of securities in Beijing. "Today's situation is much more favorable than in 2015."
Additional reporting by Yizhen Jia