(Yicai Global) March 8 -- China’s foreign exchange reserves narrowed for the second straight month last month mainly due to valuation changes, according to experts.

Forex reserves held at China’s central bank declined by USD5.7 billion to USD3.2 trillion from January, the State Administration of Foreign Exchange announced yesterday. In January, the tally had shrunk by USD5.9 billion.

The US Dollar Index rose and prices of major countries’ bond assets fell due to factors such as Covid-19 vaccine development, fiscal policies, and major economies' inflation expectations, said SAFE spokesperson Wang Chunying.

The DXY, which measures the greenback against a basket of currencies, rose by 0.3 percent to 90.9 last month. Meanwhile, major global stock indexes gained. The S&P 500 Index climbed 2.6 percent, the EURO STOXX 50 jumped by 4.5 percent and the Nikkei 225 surged by 4.7 percent. However, the Bloomberg Barclays Global Aggregate Bond USD Hedged index fell 1.6 percent as inflation fears lifted their head and bond yields rose.

Considering the effects of exchange rate conversion and asset price changes, valuation factors led to a reduction in China's forex reserves in February, Wen Bin, chief researcher at China Minsheng Bank, told Yicai Global.

Going Forward: Stability

But the decline is not predicted to get significantly bigger. Although China's forex reserves have fallen slightly for two consecutive months, Wen predicts that the scale should remain quite stable in the future.

The global economic recovery has led to a rebound in trade demand. In the first two months of this year, China’s US dollar-denominated exports jumped 60.6 percent from a year ago, which should maintain stable forex reserves and offset some of the downward pressures, according to Wen.

Yuan-denominated assets are becoming appealing as the domestic economy recovers in a steady manner, said Wen. The international balance of payments is expected to stay balanced, which provides a basis for stable forex reserves, he added.

However, the global pandemic poses uncertainties. China is expected to focus on epidemic prevention and control to drive social and economic development and maintain a basic balance of international payments, he added.

Editor: Emmi Laine, Xiao Yi