Foreign currency reserves of China ended the 7-month losing streak

Foreign currency reserves ChinaForeign currency reserves of China ended the 7-month losing streak and recorded a surprise increase in February. This is happening against the background of a tightened capital controls to curb the outflow of capital and the appreciation in the yuan. The increase is the first since June 2016.

The reserves increased by 6.9 billion USD to 3.005 trillion USD in February, according to the People’s Bank of China. The result is beating the economists forecasts, who expected the amount to be 2.969 trillion USD.

Stronger economic growth, more stringent capital controls and stabilizing yuan supported to stop the decline in the largest international reserves in the world. In 2014, Foreign currency reserves of China peaked at 4 trillion USD and since then shrank, as the authorities sold dollars to control the depreciation of the yuan.

Over the past two months this pressure dropped, as the yuan rose by 1.1% amid a decline in Dollar Spot Index.

The recovery is not surprising, as expected drop consideration appreciation of the dollar in February. The growth shows that the central bank probably did not interfere much in the spot market in February as sentiment was stable, a volume of yuan in the domestic market were lower than usual.