Yuan declines on capital outflow signs amid PBOC easing bets

[BEIJING] China's yuan dropped to a one-week low after data signaled capital is leaving the country amid speculation the central bank will ease monetary policy to help the economy.

Yuan positions for foreign-exchange purchases at Chinese financial institutions fell 108.3 billion yuan (S$23.4 billion) to 29.3 trillion yuan in January, the lowest in a year, according to People's Bank of China figures released Tuesday. A series of reserve-requirement ratio cuts may be made to increase the supply of money, China International Capital Corp. wrote in a note Monday. Domestic markets will be shut Feb 18 through Feb 24 for the Lunar New Year.

The yuan fell 0.08 percent to 6.2535 a dollar, the weakest since Feb 5, as of 11.21 am in Shanghai, China Foreign Exchange Trade System prices show. It traded at a 1.93 per cent discount to the central bank's fixing, nearing the 2 per cent limit and close to the 1.96 per cent record. The PBOC weakened the reference rate by 0.09 per cent, the most in more than two weeks, to 6.1330.

"The fall in yuan positions indicates that domestic investors are growing less optimistic about the currency and capital is fleeing China," Xiang Chu, a Shanghai-based foreign- exchange analyst at Industrial Bank Co, said by phone. "The market is expecting the PBOC to announce more easing policies and the yuan to depreciate further, so the capital outflows will continue." The offshore yuan traded in Hong Kong dropped 0.09 per cent to 6.2738 a dollar, the lowest since Feb 3, according to data compiled by Bloomberg. Twelve-month non-deliverable yuan forwards rose 0.02 per cent to 6.3875, 2.09 per cent weaker than the Shanghai spot rate.

BLOOMBERG