Yuan overnight rate hits 94-pct in Hong Kong

(Reuters) – China’s offshore yuan implied overnight deposit rate hit a record high of 94 percent in Hong Kong in volatile morning trading on Tuesday, as suspected intervention from the central bank drained liquidity in the offshore market.

"There’s still a lot of swap squeezing going on. The funding for the swap positions is being squeezed by the central bank interventions via Chinese banks that used to be main liquidity providers of the offshore yuan," said the head of FX trading at an Asian bank in Hong Kong.

"It will last for a few days and perhaps we’ll see some relief later this week as a lot of short yuan positions will be forced to be squared within days."

Suspected interventions in the offshore yuan market have pushed up the offshore spot rate to almost the same level as the onshore rate. The spread between the two rates hit more than 1,600 pips last week.

The Hong Kong Monetary Authority (HKMA) rolled out a 10 billion yuan ($1.52 billion) intra-day repurchase facility and designated seven banks as primary liquidity providers for offshore yuan market in Hong Kong to meet increasing demand for the Chinese currency at the end of 2014.

The HKMA, through the RMB liquidity facility and the Primary Liquidity Providers scheme, has provided liquidity support to banks and the usage of the facilities increased on Monday, said a spokeswoman for the city’s de-facto central bank.

However, traders say the liquidity facility does not help much as the rates the HKMA charges for the funds are the same as market rates, which are very high at present.

The Hong Kong Treasury Markets Association fixed the offshore yuan overnight interbank offered rate (Hibor) at 66.8 percent on Tuesday. It was the highest level since the fixing was launched in June 2013.

Yuan accumulation in the offshore market lost momentum in 2015 after the currency’s largest yearly loss on record against the dollar and is still under heavy pressure as fresh weakness this year will reinforce investors’ aversion to the yuan.

Yuan deposits in Hong Kong stood at 864.2 billion yuan ($131.35 billion) in November, a bit higher than 854.3 billion yuan a month earlier but still hovering around two-year lows. (HONG KONG, Jan 12/2015)





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