China FX reserves drop in October by the most in 2016

The value of the People's Bank of China's stash of foreign exchange reserves shrank in October by the most so far in 2016 but not because of capital outflows and interventions by the central bank, although a future re-acceleration in the pace of outflows might yet be on the cards, a leading think-tank said.

China's foreign exchange reserves lost $46bn in value during the month of October to reach $3.12trn (consensus: $3.14trn).

However, the fall in the value of the US dollar and in global bond prices were likely the chief factors behind the drop, Capital Economics's China economist Julian Evans-Pritchard said in a research note sent to clients.

That meant that the figures also suggested the pace of outflows slowed slightly from the $59bn observed in September. Likewise, the data implied that the PBoC's FX interventions fell from the $51bn seen in September, which was already far less than the record $110bn of central bank sales carried out in December 2015, at the height of the renminbi depreciation scare.

Hence, the decline in the value of the country's FX reserves was less alarming than might at first glance appear to be the case.

However, capital outflows remained sizeable and a renewed slide in the value of the renminbi against the US dollar might see outflows reaccelerate, Evans-Pritchard added.