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Tuesday, February 7, 2017, 17:33

Forex level dips but is seen as adequate

By Wang Yanfei
Forex level dips but is seen as adequate
A residents shows China's yuan and US dollar banknotes in Qionghai, South China's Hainan province, Jan 7, 2016. (Photo / Xinhua )

China's foreign exchange reserves dropped in January to US$2.998 trillion, falling below the US$3 trillion level for the first time since early 2011 and showing that capital outflow pressure persists.

Analysts expect the decline to slow in the next couple of months with Beijing's move to curb capital controls and as seasonal factors decline.

The central parity rate of the yuan set by the central bank strengthened to 6.8604 against the dollar on Tuesday.

The offshore yuan retreated on Tuesday afternoon soon after the data was released, trading at 6.8354 against the dollar as of 5:30 pm.

READ MORE: China's forex reserves still abundant

The State Administration of Foreign Exchange, the nation's top currency regulator, said on Tuesday that the forex level remains adequate and not too much should be read into the figure.

Xie Yaxuan, chief economist with China Merchants Securities, attributed the decline to the reset of the US$50,000 annual foreign exchange quota in January, as well as rising demand for foreign exchange for overseas travel. An estimated US$15 billion to US$30 billion worth of foreign currency was purchased by individuals in January, according to Xie.

The latest steps by the central bank will help ease depreciation pressure on the yuan and raise the cost of moving money out, according to Wang Youxin, an economist at the Institute of International Finance affiliated with Bank of China.

READ MORE: Experts allay China's forex reserve unease

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