CHINA’S foreign reserves fell for a third straight month in January, as the central bank dumped U.S. dollars to defend the yuan and prevent an increase in capital outflows.

    China’s foreign reserves fell US$99.5 billion to US$3.23 trillion in January, the lowest level since May 2012, central bank data showed, but higher than the median forecast of US$3.20 trillion from economists.

    The size of the drop was second only to the US$107.9 billion fall in December, the largest monthly decline on record. The central bank has intensified efforts to prop up the yuan after it staged a surprise devaluation in early August.

    China’s reserves remain the world’s largest despite losing around US$420 billion in the last six months. In 2015, they fell by US$513 billion, the largest annual drop in history.

    The country’s foreign exchange regulators said Feb. 4 that trade and investment had caused US$342.3 billion of the drop in reserves in 2015, while currency and asset price changes caused another US$170.3 billion fall.

    Officials said the fall had been further exacerbated by a rush by local firms to repay foreign debt and increased dollar buying by local residents as the yuan fell.

    Capital outflows have gained momentum since the yuan’s August devaluation, fanned by concerns about China’s economic slowdown and expectations of U.S. interest rate rises.

    “Monetary easing is highly needed amid economic slowdown, but the capital outflow will naturally tighten the monetary policy,” said Hao Zhou, senior emerging markets economist at Commerzbank in Singapore.

    “In the meantime, to prevent the currency from a fast depreciation, the central bank will have to sell its forex reserves, which will tighten the liquidity.”

    The central bank has taken recent steps to curb currency speculation, including setting a limit on yuan-based funds to invest overseas and implementing a reserve requirement ratio on offshore banks’ domestic yuan deposits.(SD-Agencies)