China’s foreign reserves fall more than expected in September

China released its foreign reserves data for September today. It showed that the nation’s foreign reserves dropped more than expected by USD 18 billion to USD 2.17 trillion. This is the lowest level seen since May 2011. The valuation impact was slightly smaller as the Dollar Index remained stable in the month, noted Commerzbank.

The decline in reserves implies that the Chinese central bank, People’s Bank of China, might have intervened to steady the currency before the CNY’s official inclusion into the IMF SDR basket on the 1st of October. Looking ahead, the central bank’s bias for USD/CNY stability might see them continue to defend the 6.70 level, according to Commerzbank. That is because to lower the risks of capital flight and avert any sharp deviations in the CNY-CNH spread.

“Our base case is USD/CNY at 6.65 by year-end”, added Commerzbank.

The central bank vice Governor Yi Gang stated at an IMF panel that the Chinese economy is expected to expand 6.5 percent to 7 percent in 2016 and that the nation’s employment remains sound. But there are increasing worries regarding the sharp increase in property prices in the Tier 1 cities that might risk financial stability. More cities have now tightened measures including increasing the down payment for the first and second home purchases from 20 percent to 30 percent-35 percent, said Commerzbank.