SHANGHAI: China’s central bank in November recorded its biggest net purchase of foreign exchange in more than six years, as the yuan strengthened.
Robust exports, growing trade surplus and ample dollar liquidity onshore have been driving the yuan stronger to become one of the best-performing Asian currencies this year, up about 3% against the strengthening dollar year-to-date.
In trade-weighted terms, the yuan is at its strongest since late 2015.
China’s central bank purchased a net 35.4 billion yuan ($5.56 billion) worth of foreign exchange in November, according to Reuters calculations based on central bank data released on Wednesday, marking the biggest net purchases since October 2015.
Through net buying foreign exchange the central bank was effectively absorbing redundant dollar liquidity from the banking system, traders and analysts said.
The recent fast yuan appreciation prompted many market participants to believe that the authorities have grown increasingly uncomfortable with the currency’s strength.
The People’s Bank of China (PBOC) announced on Dec. 9 a hike in the foreign exchange reserve requirement ratio (RRR) by 200 basis points (bps) to 9% from 7% from Dec. 15, thereby requiring financial institutions to hold an additional $20 billion in foreign exchange in reserve at the central bank.
Some economists had expected the PBOC to step up such dollar buying to slow the pace of yuan appreciation, as the move could also inject yuan liquidity to supplement cash balances in the financial system.Business Recorder
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