China’s foreign exchange reserves unexpectedly rose in June after Britain’s decision to leave the European Union, coupled with strengthening safe-haven assets such as the Japanese yen.
The world’s largest currency hoard increased by US$13 billion to US$3.21 trillion in the month, Bloomberg reports, citing the People’s Bank of China.
That compares with a US$3.17 trillion median forecast of economists surveyed by Bloomberg.
The yen, which China holds as part of its reserves, grew 7.3 percent against the US dollar in June.
“This indicates that the PBoC didn’t heavily intervene in the currency market last month as it let the yuan depreciate in accordance with market supply and demand,” said Nathan Chow, an economist at DBS Group Holdings Ltd. in Hong Kong.
“The yuan will drop further as Beijing apparently has a bias for depreciation due to the weaker economy, which will lead to more outflows and pressure the reserves in the second half.”
While the holdings have remained steady this year, stabilizing after a rare decline last year, they’re still down 20 percent from a US$4 trillion peak in June 2014.
The yuan fell to the lowest since 2010 this week, pressured by surging demand for the dollar and the yen after the UK voted to leave the EU and weakening economic data.
Reserves denominated in the International Monetary Fund’s Special Drawing Rights currency also increased, rising to 2.29 trillion in June from 2.28 trillion in May.
With the economy on firmer ground and markets more stable compared with last year, there aren’t any major capital outflows even amid rising external stress due to the stronger dollar and global risk aversion, said Harrison Hu, chief greater China economist at Royal Bank of Scotland Plc.
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