CHINA’S foreign exchange reserves fell for a third straight month in September and by slightly more than markets had expected, suggesting fresh capital outflows from the world’s second-largest economy.

    Forex reserves fell nearly US$19 billion to US$3.166 trillion, from US$3.185 trillion in August, central bank data showed Friday. The decline is a reflection of both currency intervention by the central bank and capital outflows, according to Zhao Yang, Nomura Holdings Inc.’s chief China economist.

    Economists polled had expected reserves to ease to US$3.18 trillion, after dropping to the lowest since 2011 in August after the central bank intervened to support the yuan currency as it weakened to near six-year lows.

    China’s reserves, the largest in the world, fell by a record US$513 billion last year after the government devalued the yuan, sparking a flood of capital outflows that threatened to destabilize the economy and alarmed global financial markets.

    But declines had slowed sharply in the first half of this year as authorities tightened capital controls and cracked down on forex trading which they suspected to be speculation.

    Tentative signs of stabilization in the economy and investment inflows were also believed to be offsetting outflow pressures.

    However, while September’s US$18.8 billion drop was modest compared with overall reserves, it was larger than a decline of US$15.89 billion in August and the biggest in three months.

    “It’s almost US$20 billion, which is quite a considerable fall,” said Julian Evans-Pritchard, China economist at Capital Economics, adding the impact of exchange rates and bond market movements meant the real figure was probably even higher.

    “I think there is still quite significant intervention in the currency markets by the central bank and I think today’s data highlights that.”

    Traders believe the People’s Bank of China has stepped in via State-run banks since July to slow the pace of depreciation in the yuan, which has weakened 2.7 percent against the U.S. dollar so far this year.

    The central bank has been suspected of stepping up currency intervention to stabilize the yuan before a Group of 20 meeting in China last month and leading up to the yuan’s inclusion in the International Monetary Fund’s Special Drawing Rights on Oct. 1. Onshore Chinese markets are closed last week for a holiday and will reopen today.

    The offshore yuan traded in Hong Kong fell beyond 6.7 a dollar last week, a mark that has been seen as the onshore currency’s red line for the central bank. The yuan traded in Shanghai declined past that level in July and spurred suspected central bank intervention.

    But most market watchers expect the central bank will allow the yuan to resume its gradual descent later this year, especially if the chances of a U.S. interest rate hike are seen rising, buoying the dollar.

    The yuan is expected to fall another 3 percent by next September, according to a poll of more than 70 foreign exchange strategists issued Thursday.

    Regulators will continue to crack down on forex violations and strengthen monitoring of cross-border capital flows, the State Administration of Foreign Exchange said last month, adding that it will also push forward to achieve capital account convertibility in an orderly manner. (SD-Agencies)