China Banking System Net Forex Purchase May 2012

forex trading outlook today - China Banking System Net Forex Purchase May 2012 : China's central bank and financial institutions bought a net 23.4 billion yuan ($3.7 billion) of foreign currency in May, compared with a net sale of CNY60.57 billion in April, according to Dow Jones Newswires calculations based on central bank data issued Tuesday.

The May figure reversed April's net sale which in turn followed a net purchase in March, suggesting capital again flowed inbound despite concern over economic slowdown in China amid the euro zone's continuing sovereign debt crisis.

The banking system's foreign-currency purchase position totaled CNY25.61 trillion at the end of May, higher than the CNY25.59 trillion recorded at the end of April, the data from the People's Bank of China showed.

Although the data include purchases and sales by commercial banks and other financial institutions, they mostly reflect transactions by the central bank. Analysts view the figures as a proxy for inflows and outflows of foreign capital, as most foreign currency that enters the country is typically sold to the central bank.

The banking system's foreign-currency purchase position is a rough guide to change in domestic liquidity conditions. It doesn't indicate how much of the net inflows the central bank has sterilized through the issuance of bills or other measures.

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