China's central bank has relaxed some of the curbs on cross-border capital outflows it put in place just months ago to shore up the yuan currency, banking sources said yesterday.
The first easing of the measures comes as China's leaders and financial markets feel more confident that pressure on the yuan and the country's foreign exchange reserves has diminished, thanks largely to a pullback in the surging U.S. dollar.
The yuan slumped around 6.5 percent against the dollar last year, but has firmed nearly 1 percent in 2017, defying -- for now -- many analysts' expectations of further depreciation.
Indeed, a Reuters poll earlier this month indicated investors likely increased their bullish bets on the yuan to the most since July 2015. With less incentive for capital flight and the economy on steadier footing, China's foreign exchange reserves have clawed back above the closely watched $3 trillion level.
Premier Li Keqiang said on Tuesday that market confidence in the yuan has significantly improved, Xinhua news agency reported. As of last week, the People's Bank of China (PBOC) is no longer demanding that banks match outflows with equal inflows, the sources said.
The South China Morning Post first reported the relaxation of the capital controls earlier yesterday.
Expectations of further yuan depreciation have eased in recent months, opening a window for authorities to relax recent measures, but Beijing is not likely to let go totally, said Raymond Yeung, chief Greater China economist at ANZ in Hong Kong.
While the world's second-largest economy still has the largest stash of forex reserves by far, it had burned through over half a trillion dollars since August 2015 trying to support the yuan.
On Tuesday, China reported that its non-financial outbound direct investment (ODI) slumped 30.1 percent in March from a year earlier as authorities kept a tight grip on outflows. In the first quarter, it fell nearly 49 percent.
While Beijing says it supports legitimate overseas investment, regulators have warned they would pay close attention to "irrational" investment in property, entertainment, sports and other sectors.
Much will depend on the outlook for the U.S. currency, which analysts expect to rebound eventually as the Federal Reserve continues to slowly raise interest rates.