Capital flows into China have rebounded this year, the central bank said, adding to the case for officials refraining from making more cuts in banks' reserve requirements, says Bloomberg.
Expectations for a decline in the value of the yuan against the U.S. dollar have also reversed, with non-deliverable forward contracts now forecasting no change or some appreciation, the People's Bank of China said in a quarterly monetary policy report posted on its website yesterday. It didn't specify when the document was prepared.
China reduced the amount of money banks must set aside as reserves for the first time in three years in December as capital inflows dried up amid Europe's debt crisis, exacerbating a domestic credit crunch. UBS AG and Nomura Holdings Inc. have scaled back forecasts for cuts after liquidity increased and the trade surplus surged.
"Large foreign-currency inflows may exert great influence on Chinese central bank monetary policy, and may reduce the likelihood of a cut in reserve requirements," said Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong, who previously worked at the World Bank. Inflows this year, including a higher-than-forecast trade surplus, may also put "relatively large" appreciation pressure on the yuan, he said.
China's foreign-exchange reserves, the world's biggest at US$3.18 trillion, dropped for the first time in more than a decade in the fourth quarter as foreign investment moderated, the trade surplus narrowed and Europe's crisis spurred investors to sell emerging-market assets.
Source:chinesestock