[BEIJING] China's foreign-exchange reserves shrank to the smallest since 2012,indicating that the central bank sold dollars as the yuan's retreat to a five-year low exacerbated depreciation pressure.
The world's largest currency hoard declined by US$99.5 billion in January to US$3.23 trillion, according to a People's Bank of China statement released on Sunday. The drop was less than a Bloomberg survey's median estimate of a US$120 billion loss. The stockpile fell by more than half a trillion dollars in 2015, the first-ever annual decline.
Policy makers fighting to hold up the weakening yuan amid slower economic growth, plunging stocks and increasing outflows have been burning through the reserves. The draw-down has continued since the central bank's surprise devaluation of the currency in August, when the stockpile tumbled US$94 billion, a monthly record at the time.
"While the remaining reserves represent a substantial war chest, the rapid pace of depletion in recent months is simply unsustainable," said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. "Domestic private investors and global currency traders see a one-way bet against the currency. This has resulted in large-scale private capital outflows since early 2015 as expectations mount that the PBOC will eventually be forced to capitulate once its reserves are sufficiently depleted."
Capital outflows increased to $158.7 billion in December, the most since September and were $1 trillion last year, according to estimates from Bloomberg Intelligence. That's more than seven times the amount of cash that left in 2014.
The PBOC has stepped up efforts to stem the exodus, warning speculators that they will be punished. It intervened in the Hong Kong market last month after the yuan's offshore exchange rate sank to a record 2.9 percent discount to the onshore rate. Apart from selling dollars, the monetary authority also gave guidance to some Chinese lenders in the city to suspend yuan lending to curb short selling, a move that contributed to the overnight interbank lending rate surging to an all-time high of 66.8 percent on Jan. 12.