China's foreign currency reserves fell for the fourth consecutive month in February, although the slower pace of decline suggests recent stability in currency markets eased pressure on the central bank to intervene aggressively
China's reserves totaled $3.20 trillion at the end of February, in line with Reuters expectations but dropping from $3.23 trillion the previous month, the People's Bank of China (PBOC) announced on Monday.
The country's foreign exchange reserves have come under close scrutiny in recent months for clues on the size of capital outflows as well as the ability of policymakers to support the yuan, or renminbi (RMB), as it's known.
The renminbi has lost nearly 3 percent against the greenback since the PBOC's historic devaluation last August, and market players widely expect prolonged declines. Goldman Sachs for example, is betting the yuan to fetch 7 per dollar by year-end, from 6.5 currently.
The prospects of further declines in the currency as well as concerns over economic growth have spurred people and companies to send money overseas. This selling of the yuan has forced the central bank to withdraw funds from its massive war chest to prop up the currency's value, thus sparking the vicious cycle between reserves and outflows.
Beijing logged $100 billion per month in average currency outflow during November, December and January, with the yuan declining 1.8 percent against the greenback in that period.
"In our view, recent outflows are not a symptom of panic but more a sign of Chinese companies and residents' expectations of a short-term drop in the value of the RMB," asset management firm AllianceBernstein (AB) explained in a report.