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China's offshore yuan slides after record-high drop in forex reserves

China's policymakers think they can stem a rapid rundown of their foreign exchange reserves and ease pressure on the currency by pump-priming the economy to meet this year's growth target, sources involved in policy discussions said.

[SHANGHAI] Offshore yuan softened to around 6.49 per dollar on Monday after official data showed China's foreign exchange reserves dropped by a record US$93.9 billion in August, trading at the deepest discount to the onshore rate since September 2011.

Offshore yuan was trading more than 1,200 pips away from the onshore yuan, a discount of 1.89 per cent to the onshore close of 6.3659, implying that offshore investors expect further depreciation.

The drop in foreign exchange reserves was widely anticipated as the central bank stepped up intervention to stabilise the yuan currency after a surprise devaluation last month.

China's foreign exchange reserves, the world's largest, have been falling from a record US$3.99 trillion in June 2014 due to a wave of capital outflows fuelled by jitters about its economic slowdown and an expected move by the U.S. Federal Reserve to raise interest rates.


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