China’s official foreign reserves are likely to have dropped again, although moderately, in April, according to Societe Generale. China’s FX reserves are expected to have decreased to $3,195 billion in April from $3,212 at the end of March. The FX valuation effects were likely a small detractor, noted Societe Generale. Therefore the projection suggested an additional drop of FX intervention by the Chinese central bank to around USD 20 billion in April from March’s USD 35 billion, said Societe Generale.
If that happens, this will be the fourth straight month of easing of capital outflow pressure. Tighter capital controls and USD weakness both are expected to have helped again. But the USD/CNY stabilization is still expected to be an unstable equilibrium that might be disrupted by dollar’s renewed strength or further domestic liquidity easing by the Chinese central bank, added Societe Generale.
