* FX Reserves fall for third month in a row
* Central bank tightens capital controls
(Adds background, economist comment)
BEIJING Feb 7 China's foreign reserves fell for
a third straight month in January, as the central bank dumped
dollars to defend the yuan and prevent an increase in capital
China's foreign reserves fell $99.5 billion to $3.23
trillion in January, the lowest level since May 2012, central
bank data showed, but higher than the median forecast of $3.20
trillion from economists surveyed in a Reuters poll.
The size of the drop was second only to the $107.9 billion
fall in December, the largest monthly decline on record. The
central bank has intensified efforts to prop up the yuan after
it staged a surprise devaluation in early August.
China's reserves remain the world's largest despite losing
around $420 billion in the last six months. In 2015, they fell
by $513 billion, the largest annual drop in history.
The country's foreign exchange regulators said on Feb. 4
that trade and investment had caused $342.3 billion of the drop
in reserves in 2015, while currency and asset price changes
caused another $170.3 billion fall.
Officials said the fall had been further exacerbated by a
rush by local firms to repay foreign debt and increased dollar
buying by local residents as the yuan fell.
Capital outflows have gained momentum since the yuan's
August devaluation, fanned by concerns about China's economic
slowdown and expectations of U.S. interest rate rises.
"Monetary easing is highly needed amid economic slowdown,
but the capital outflow will naturally tighten the monetary
policy," Hao Zhou, senior emerging markets economist at
Commerzbank in Singapore, said in a note after the data.
"In the meantime, to prevent the currency from a fast
depreciation, the PBOC (People's Bank of China) will have to
sell its FX reserves, which will tighten the liquidity."
The PBOC has taken recent steps to curb currency
speculation, including setting a limit on yuan-based funds to
invest overseas and implementing a reserve requirement ratio on
offshore banks' domestic yuan deposits.
China also eased capital rules for foreign institutional
investors to buy onshore stocks and bonds.
Economists expect Beijing to tighten capital controls and
close regulatory loopholes to curb the flight of money.
China's gold reserves rose to $63.57 billion at the end of
January, from $60.19 billion at end-2015, the PBOC said.
They stood at 57.18 million fine troy ounces at the end of
January, up from 56.66 million fine troy ounces in December.
China's International Monetary Fund reserve position was at
$3.76 billion at end-January, down from $4.55 billion in
December. The central bank held $10.27 billion of IMF Special
Drawing Rights, compared with $10.28 billion at end-December.
(Reporting by Meng Meng and Beijing Monitoring Desk; Edited by