Capital flows into China slowed down in November from a near record high in October, central bank data showed, which could reduce the need for an imminent tightening of monetary policy.
The "Position for Forex Purchases" showed November inflows remained at a relatively high level historically. To reduce the prospects for speculative "hot money" to flow into China in search of higher returns, the central bank may resort to quantitative policy tools instead of interest rate increases in the medium term, analysts say.
"November's capital inflow figure has reduced the possibility for a near-term tightening step, whether it is an interest rate hike or a bank reserve ratio rise," said bond market analyst Liu Junyu at China Merchants Bank.
"In the longer term, the PBC is likely to rely mainly on tools aimed at draining liquidity because rate hikes may invite more speculative inflows into China while their impact on curbing money supply is relatively small." The People's Bank of China (PBC), the central bank, and Chineseinstitutions spent 319.6 billion yuan ($48 billion) to absorb foreign exchange flowing into China in November.
That was down sharply from 519 billion yuan ($78 billion) in October, the third largest since the data was published in the late 1990s.
But the November report, a key measure of capital inflows into China, was much higher than the 290 billion yuan ($43 billion) in September and 243 billion yuan ($36 billion) in August.
Chinese interest rate swaps (IRS) and bond yields fell on Monday in response to the capital inflows figures. Benchmark five-year and 10-year IRS both dropped 5 basis points.
China has seen a steady increase of capital inflows in the last decade as speculators bet on a rise in the country's shares and property as well as appreciation of the yuan against the dollar.
The slowdown in capital inflows in November reflected a 5.3 percent fall in the stock market in the month, following a 12.2 percent jump in October, and continued efforts by the government to control high property prices. The yuan also fell in the second half of November after hitting a multi-year peak in the middle of the month.
The "Position for Forex Purchases" showed November inflows remained at a relatively high level historically. To reduce the prospects for speculative "hot money" to flow into China in search of higher returns, the central bank may resort to quantitative policy tools instead of interest rate increases in the medium term, analysts say.
"November's capital inflow figure has reduced the possibility for a near-term tightening step, whether it is an interest rate hike or a bank reserve ratio rise," said bond market analyst Liu Junyu at China Merchants Bank.
"In the longer term, the PBC is likely to rely mainly on tools aimed at draining liquidity because rate hikes may invite more speculative inflows into China while their impact on curbing money supply is relatively small." The People's Bank of China (PBC), the central bank, and Chineseinstitutions spent 319.6 billion yuan ($48 billion) to absorb foreign exchange flowing into China in November.
That was down sharply from 519 billion yuan ($78 billion) in October, the third largest since the data was published in the late 1990s.
But the November report, a key measure of capital inflows into China, was much higher than the 290 billion yuan ($43 billion) in September and 243 billion yuan ($36 billion) in August.
Chinese interest rate swaps (IRS) and bond yields fell on Monday in response to the capital inflows figures. Benchmark five-year and 10-year IRS both dropped 5 basis points.
China has seen a steady increase of capital inflows in the last decade as speculators bet on a rise in the country's shares and property as well as appreciation of the yuan against the dollar.
The slowdown in capital inflows in November reflected a 5.3 percent fall in the stock market in the month, following a 12.2 percent jump in October, and continued efforts by the government to control high property prices. The yuan also fell in the second half of November after hitting a multi-year peak in the middle of the month.
