CHINA’S foreign exchange reserves unexpectedly rose in July even as worries over escalating trade tensions between the United States and China have caused market volatility.

Changes in China’s foreign currency holdings are closely watched by investors for any signs of capital flight, as rising trade tensions have hit Chinese stocks and the yuan currency.

Reserves rose US$5.82 billion in July to US$3.118 trillion, compared with a rise of US$1.51 billion in June, central bank data showed Tuesday.

Some economists had expected reserves to drop by US$12.1 billion last month to US$3.100 trillion.

The July reserves “point to continued inaction by the People’s Bank (PBOC),” Julian Evans-Pritchard at Capital Economics said in a note.

“The fact that headline reserves moved in the opposite direction doesn’t mean the PBOC purchased foreign exchange last month to push down the value of the yuan. More likely, the increase simply reflects valuation effects from a rise in the price of the foreign bonds held by the PBOC,” he said.

Financial asset fluctuations and changes in non-dollar currencies lead to the small rise in China’s foreign exchange reserves, the State Administration of Foreign Exchange said in a statement.

During July, the dollar index that measures it against other major currencies fell 0.2 percent.

The yuan has fallen 6.3 percent against the dollar since June 14, due to escalating trade tensions with the United States, and that has fanned fears of capital outflows. In 2017, when there were substantial outflows, China imposed tighter capital controls.

The yuan weakened for a fourth straight month in July, the longest such streak since early 2015.

On Friday, China’s central bank said it would set a reserve requirement ratio of 20 percent for financial institutions settling forward dollar sales to clients, effectively raising the cost for investors shorting the yuan.

The People’s Bank of China said it would take counter-cyclical measures to keep foreign exchange markets stable.

The central bank also said raising forex settlement reserve requirements is a transparent, non-discriminatory, price-based prudential policy tool, not a capital control.

The value of China’s gold reserves fell to US$72.324 billion at the end of July, from US$74.071 billion at the end of June. (SD-Agencies)