China's foreign exchange regulator said on Thursday it sees no reason for sharp falls in the yuan given the country's strong balance of payments position and that there is some latitude for modest declines in its FX reserves. Wang Yungui, head of the policy and regulation department, made the comments at a news conference held by the State Administration of Foreign Exchange (SAFE).
China's foreign exchange reserves, the world's largest, fell by $87.2 billion in November to $3.44 trillion, central bank data showed on Monday, the lowest level since February 2013 and the third-largest monthly drop on record. "Modest declines in reserves are something that can be tolerated," he said. "There's no basis for a sharp depreciation of the yuan given that China's international balance of payment position remains sound," he added.
Targeted measures by policymakers have helped limit capital outflows and curb speculation in the yuan, said Wang Chunying, the deputy head of SAFE's international balance of payments department. The regulator said it had investigated numerous cases of illegal capital outflows and had cracked down on underground banking. Chinese authorities uncovered the country's biggest underground banking case involving transactions totalling more than 410 billion yuan ($63.68 billion), official media reported in November, after China started an underground banking crackdown in April.
China's surprise devaluation of the yuan on August 11 fuelled a wave of capital outflows on fears the world's second-largest economy might be slowing more sharply than thought. Like many other currencies, it has also slipped against the US dollar on expectations of an interest rate increase by the US Federal Reserve.