Decline in forex funds to lower RRR

The drop in China's funds outstanding for foreign exchange in June increased the odds of the central bank lowering the reserve requirement ratio (RRR) in the second half of the year, China Securities Journal reported Tuesday. China's total yuan funds outstanding for foreign exchange reached 27.39 trillion yuan (4.44 trillion U.S. dollars) at the end of June, down 41.2 billion yuan month on month, indicating the first net outflow of capital since last year, figures from the People's Bank of China (PBOC) showed on Monday. Meanwhile, China's exports took a surprising tumble in June, dropping 3.1 percent year on year to 174.32 billion U.S. dollars. Analysts have attributed the capital outflow to slow growth in foreign trade, the U.S. Federal Reserve's plan to taper off a third round of quantitative easing (QE3) and weakening expectations for the yuan to appreciate. A report from Bank of Communications forecast that the funds outstanding for foreign exchange will further decline from July to December this year, as newly-increased yuan funds outstanding for foreign exchange will total 1.8 trillion yuan for the entire year. Analysts also expect the shrinking funds for foreign exchange to usher in a slightly lower RRR, which will help guarantee proper liquidity. China's gross domestic product growth slowed to 7.6 percent in the first six months of the year, the weakest first-half performance in three years. Growth in the second quarter stood at 7.5 percent, down from 7.7 percent during the first quarter, according to data from the National Bureau of Statistics.