CHINA’S hoard of foreign exchange reserves in May fell to US$3.19 trillion, their lowest since December 2011, central bank data showed Tuesday, likely due to the effects of a stronger U.S. dollar.

    The reserves, the world’s largest, fell by US$27.9 billion in May, the biggest monthly drop since February.

    They rose by US$7.1 billion in April and US$10.3 billion in March, reflecting easing capital outflows and the dollar’s drop against non-dollar currencies such as the euro and yen.

    But analysts said the drop did not necessarily suggest a resurgence of speculative capital outflows.

    “It mostly reflects exchange rate fluctuations which we estimate lowered the dollar value of the portion of the reserves held in other currencies by US$25 billion,” Julian Evans-Pritchard from Capital Economics wrote in a note.

    Despite fresh weakness against the greenback, the People’s Bank of China hasn’t had to deplete its cash to support the yuan as some stability returns to the currency. While reserves have been generally steady this year, halting the steep decline of 2015, the May tally extends the decline to 20 percent from the near US$4 trillion peak in June 2014.

    Both the Japanese yen and euro weakened against the greenback last month, weighing on the value of the reserves, which are reported in U.S. dollars.

    “Depreciation expectations faded and the central bank didn’t burn its reserves to intervene in the foreign exchange market,” said Li Wei, a China and Asia economist at Commonwealth Bank of Australia in Sydney. “The drop was largely due to the valuation effect of a strong dollar, which leads to the depreciation of other currencies.”

    That was confirmed by the reserves figure denominated in International Monetary Fund Special Drawing Rights, which rose to 2.28 trillion units from 2.27 trillion in May.

    The People’s Bank of China has intervened in foreign exchange markets to cushion the yuan against capital outflows as markets brace for a rise in U.S. interest rates this year.

    “Movements in the dollar are likely to continue to play a key role in driving outflow pressures,” Evans-Pritchard wrote in his note. “Depreciation expectations remain much more manageable.”

    He estimated net capital outflows of US$32 billion in May, down from the US$120 billion per month pace seen late last year and early this year. (SD-Agencies)