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imageBEIJING: China's central bank sold the least amount of foreign exchange in five months in January, reinforcing views that capital outflows have eased as policymakers step up scrutiny of cross-border flows and as the yuan steadies.

Net foreign exchange sales by the People's Bank of China (PBOC) amounted to 208.8 billion yuan ($30.42 billion) last month, according to Reuters calculations based on central bank data released on Friday.

That compared with net sales of 317.8 billion yuan in December and 644.54 billion yuan in January 2016.

China's foreign exchange regulator said on Friday that pressure from capital outflows has eased in 2017 and that cross-border flows were becoming more balanced.

Government efforts to prop up the yuan currency pushed China's foreign exchange reserves below the $3 trillion level in January for the first time in nearly six years. But the drop moderated from recent months, suggesting tighter controls are slowing capital flight.

A recent stumble in the rising US dollar has also helped ease pressure on the yuan and other emerging market currencies. The yuan

has gained 1.2 percent against the dollar so far this year, after sliding 6.6 percent in 2016.

Currency strategists surveyed by Reuters, however, expect the yuan to come under renewed pressure in coming months on expectations that the US central bank will raise interest rates two to three times this year, bolstering the dollar.

Tim Condon, ING's head of Asia research in Singapore, said that the forex sales data was good news for the People's Bank of China (PBOC), as it indicated a significant drop in onshore dollar buying in January, but added that the fate of the yuan depends on the dollar.

"There's still uncertainty as to what would happen if we go into a period of sustained dollar appreciation. As we saw at the end of last year, if the PBOC adheres to its (fixing) policy (in the face of dollar strength), that would be associated with onshore dollar buying and reserve losses at a level that if sustained would prove politically unacceptable."

China's currency policy creates an outcome that is "sustainable in a weak dollar scenario but unsustainable in a strong dollar scenario," Condon said.

TRAVELERS, STUDENTS HIT

SAFE said that foreign currency purchases for travel and overseas study declined 28 percent month-on-month in January, the biggest travel season in China, indicating more stringent reporting requirements could be having an effect on individuals' forex purchases.

Banks on Jan. 1 began requiring individuals using their $50,000 annual foreign currency quota to specify how and when they will use funds, with additional documentation sometimes required. The new rules are meant to prevent forex purchases from being used for illegitimate purchases such as property.

Outbound direct investment from China fell 35.7 percent in January compared to a year earlier, another sign that tighter capital controls are having an effect.

Capital outflows, while slowing from late last year, continued in January, the data indicate, despite the yuan gaining the most against the dollar since March.

Copyright Reuters, 2017

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