China: Flows remain stable despite RMB depreciation – Nomura

Analysts at Nomura point out that China’s July headline FX reserves rose by USD5.8bn m-o-m to USD3117.9bn and was ahead of consensus (USD3107.0bn) and slightly closer Nomura’s view of USD3110.8bn.

Key Quotes

“After adjusting for FX valuation and coupon payment effects, FX reserves rose slightly by USD2.2bn m-o-m after a USD3.6bn increase in June. In our view, this release suggests China capital flows remain nearly balanced, despite the rather rapid 3.0% onshore RMB depreciation against USD in July.”

“We view this release as encouraging in that signs of a sharp acceleration in capital outflows have been limited1 , which suggests China’s flexible FX policy can be maintained. Indeed, the State Administration of Foreign Exchange (SAFE) noted that “since June 25 this year, market volatility has surged, but from the daily data such as foreign exchange settlement and sales and non-banking cross-border capital flows, it is far from the high pressure of capital outflow that took place in 2015 and 2016” (SCMP, 19 July).”