China’s central bank, the PBoC, has reportedly relaxed measures to curb capital outflows from the nation, perhaps encouraged by signs that the latest US dollar rally may have run its course.
Reuters, citing unnamed banking sources, says that the decision comes as China’s leaders and financial markets feel more confident that pressure on the yuan and the country’s foreign exchange reserves has diminished, thanks largely to a pullback in the surging US dollar.
As of last week, the PBoC is no longer demanding that banks match outflows with equal inflows, the source sources. No further information on whether other restrictions — including the end destination for funds — was disclosed.
Starting in late 2016, and enhanced further at the start of this year, the PBoC introduced measures making it harder for individuals and companies to move money out of China, particularly for what it deemed to be “irrational” investment in property, entertainment, sports and other sectors.
This was done to shore up the Chinese yuan after it fell by 6.5% against the US dollar in 2016, extending its decline over the past three years to 13%.
So far this year, the yuan is up by around 1% against the US dollar.
That rebound has corresponded with a reversal in the level of China’s FX reserves in recent months, rising back above the $US3 trillion level in both February and March.
This has been as a result of revaluation effects but also a slowdown in capital outflows from the nation.
While the PBoC appears more relaxed about the potential for outflows given recent stability in the yuan, it’s still likely to monitor developments closely.
“Expectations of further yuan depreciation have eased in recent months, opening a window for authorities to relax recent measures, but Beijing is not likely to let go totally,” Raymond Yeung, chief Greater China economist at ANZ, told Reuters.
“The current macro environment obviously favors an easing of the (rules on) fund flows, but that doesn’t mean that it is going to have solved the structural issue of the mismatch between the corporate desire to go out versus the central government’s centrally-driven approach when they talk about offshore investment.”
You can read more from Reuters here.
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