China central bank FX sales rise to 10-month high as yuan stumbles

BEIJING: China's central bank sold a net $55.4 billion worth of foreign exchange in November, the highest since January, as the authorities stepped up efforts to shore up the sliding yuan amid a relentless rise in the dollar.

Net foreign exchange sales by the People's Bank of China (PBOC) amounted to 382.7 billion yuan ($55.4 billion), according to Reuters calculations based on central bank data released on its website on Wednesday. That compared with net sales of 267.9 billion yuan in October.

Earlier data showed China's foreign exchange reserves fell far more than expected by $69.06 billion in November to $3.052 trillion, the lowest level in nearly six years.

In November, the yuan hit an almost 8-1/2-year low against a broadly strengthening dollar, forcing the authorities to tighten outbound investment as they scrambled to staunch capital outflows.

Capital outflows through both legal and illegal channels have added pressure to the yuan's slide. The Chinese currency has lost nearly 6 percent of its value against the dollar so far this year.

The central bank is widely believed to have sold U.S. dollars to cushion the descent of the yuan in recent months, even as a slew of economic data has provided more evidence that the economy is stabilising.

Amid growing speculation the yuan will slide further with an expected rate hike by the U.S. central bank, a PBOC adviser this month urged Chinese policymakers to use part of its foreign reserves to support the yuan and break the currency's one-way downward trend.

Persistent capital outflows could increase pressure on the PBOC to cut banks' reserve requirement ratio (RRR), but analysts believe the central bank still has plenty of tools at its disposal to adjust liquidity in the market without resorting to such a broad-based policy.