China central bank’s net forex sales fall to 10-month low

China’s central bank in March sold the smallest amount of foreign exchange in 10 months, reinforcing signs of easing capital outflows due to regulatory curbs and a pause in the dollar’s rally.
Net foreign exchange sales by the People’s Bank of China (PBoC) were 54.7 billion yuan ($7.94 billion) last month, according to Reuters calculations based on central bank’s data released on Friday.
That compared with net sales of 58.1 billion yuan in February and 208.8 billion yuan in January.
China’s yuan has steadied this year after falling around 6.5 percent in 2016 — the biggest annual drop since 1994.
The yuan firmed against the US dollar on Friday as the effect of President Donald Trump’s Wednesday remarks about the dollar’s excessive strength lingered.
The pressure is easing also because investors are less worried about a sharp slowdown in China’s economy.
Buoyed by sustained government infrastructure spending and a gravity-defying housing market, China’s economy likely grew by a solid 6.8 percent in the first quarter from a year earlier, the same pace as in October-December, according to a Reuters poll.
Earlier data showed China’s foreign exchange reserves edged up $3.96 billion in March to $3.009 trillion, as a slowdown in the dollar’s rally aided Beijing’s efforts to contain capital outflows.
China’s foreign exchange regulator has said that pressure from capital outflows eased somewhat in 2016 and there will be greater flexibility in the yuan’s exchange rate in 2017.
Many analysts still expect the yuan to fall this year.
Despite Trump’s comments backing away from labeling China a currency manipulator, many analysts reckon the new US administration is just beginning to flex its trade muscles with Beijing and other major trading partners.
Fiscal spending increases
China’s fiscal spending surged 25.4 percent in March from a year earlier, accelerating from the first two months of the year as the central and local governments pump money into infrastructure projects to support economic growth.
Growth in government spending jumped from 17.4 percent seen in January and February combined, the Finance Ministry said.
Central government spending rose 24.3 percent in March from a year earlier, while spending by local governments jumped 25.6 percent, the ministry said in a statement on its website.
First-quarter gross domestic product (GDP) data will be reported on Monday. Combined fiscal revenues rose 12.2 percent in March, the ministry said, slowing from 14.9 percent in the first two months.
Moody’s Investors Service said this week that the fiscal stimulus that China’s government is providing to the economy is larger than the headline deficit figures suggest.
In addition to on-budget spending, Beijing provides support to the economy using off-budget funds, combined with spending and revenue measures by the broader public sector, including state-owned enterprises and government-owned policy banks, Moody’s said.
Moody’s calculates that the direct fiscal impulse that includes transfers in and out of funds was close to 4 percent of GDP over the past two years.

Source: Arab News