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China's capital flows to remain volatile in 2015-forex regulator

[SHANGHAI] China expects its cross-border capital flows to remain volatile this year after outflows accelerated in the fourth quarter of 2014, the country's forex regulator said on Sunday.

China's capital and financial account recorded a deficit of US$91.2 billion in the last three months of the year, the State Administration of Foreign Exchange said in a report on Sunday, up from US$9 billion in the third quarter.

Local residents and firms were increasingly switching to US-dollar assets, fuelling the outflows, it said. "Even though China continues to have a large trade surplus and the yuan's interest rate remains above that of other currencies, increasingly diverse and complex factors may cause greater volatility in the country's cross-border capital flows,"it said.

It also said that the yuan's exchange rate may remain fixed in the short term as an emergency measure to deal with internal and external shocks, but that the rate needed to change in the long-term to prevent imbalance and distortions in the economy.

SAFE said last month that it is closely monitoring cross-border capital flows.

Some analysts are worried that intensifying capital outflows have tightened liquidity conditions, threatening to brake the already slowing economy, and could prompt the central bank to loosen monetary policy further.

REUTERS