China's May forex purchase slows sharply

China's central bank and financial institutions spent 38.7 billion yuan on foreign exchange purchases in May, a sharp retreat from the 116.9 billion yuan in April, data from the central bank showed on Monday.

While the pace has slowed, the figure also marked the 10th consecutive month of net increases.

As of the end of May, Chinese financial institutions' total yuan funds outstanding for foreign exchange amounted to 29.54 trillion yuan, according to the People's Bank of China.

As the Chinese currency is not freely convertible under the capital account, the central bank has to purchase foreign currencies generated by China's trade surplus and foreign investment into the country from commercial banks, adding funds to the money market.

As an important part of China's basic money supply, the data serves as a guide to the central bank's policy moves to adjust liquidity in the market.

The central bank announced earlier this month that it will cut the reserve requirement ratio by 0.5 percentage points for banks engaged in proportionate lending to agricultural and small firms.