Banks Had No Surplus in Forex Settlement Last Month Despite Sharp Rise in Yuan's Exchange Rate
Xu Wei
/SOURCE : Yicai
Banks Had No Surplus in Forex Settlement Last Month Despite Sharp Rise in Yuan's Exchange Rate

(Yicai Global) Feb. 27 -- Though January saw a sharp increase in the rate of the yuan against the dollar, banks did not have a surplus in their forex settlement and sales, which indicates that the correlation between the trend of the yuan exchange rate and forex settlement and sales is weakening, analysts said.

This factor also proves that main market players did not have an expectation for continuous increase in the exchange rate of the yuan, said financial newspaper Securities Times today.

The banks' foreign exchange units recorded a slight deficit of CNY5.6 billion (USD887 million) last month, while December saw a surplus of CNY39.5 billion. There has been a surplus of CNY14.9 billion in bank clients' forex settlement and sales deals, which represents a continuous balance in forex supply and demand, per data published by the State Administration of Foreign Exchange, or SAFE.

Many financial institutions predicted to see a surplus in banking forex settlement and sales last month, suggesting the surplus will be greater than December due to the increase in the yuan's exchange rate against the dollar and the Chinese New Year. However, data turned out to be contrary to the expectations, said the report.

January saw a sharp rise in the rate of the onshore yuan against the dollar, which hit a new high in terms of single-month increase. Some forex analysts had previously suggested that the significantly strengthening yuan would change some enterprises' thinking and make them more inclined to increase their exchange settlements. The data showed the opposite.

The deficit in banking forex settlement sales was mainly caused by banks' own deficit of nearly CNY20.5 billion. In other words, banks increased their own forex purchasing, but not to a large extent. More importantly, the discrepancy between the market expectations and actual data also indicates the weakening correlation between the exchange rate of the yuan and the quantity of the forex market sales, said Yan Ling, an analyst with China Merchants Securities.

"The fact that some enterprises did not increase their forex settlement despite the considerable rise in the yuan's exchange rate against the dollar in January indicates disagreement in market players' expectations," added Yan.

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Keywords: Yuan , Dollar , SAFE , Foreign Exchange