Interbank lending rates in Hong Kong’s yuan market surged to record highs today as traders bet the Chinese currency will depreciate further, putting pressure on offshore yuan liquidity.
The CNH Hong Kong Interbank Offered Rate benchmark (CNH Hibor), set by the city’s Treasury Markets Association (TMA), rose to 10.1 percent for seven-day contracts, the highest level since the benchmark was created in June 2013. On Monday, the rate was 7.4 percent.
The calculation of the CNH Hibor is based on the rate contributions by 15 to 18 regional and global banks appointed by the TMA and selected by the Hong Kong Monetary Authority (HKMA) based on how active they are in the offshore yuan market.
“Investors have been betting on more yuan depreciation by borrowing yuan and converting to dollars, which has led to tightness in offshore yuan liquidity,” said a trader at an American bank in Hong Kong.
“The CNH Hibor has more room to rise as sentiment on the yuan’s prospect remains weak,” said the trader.
The People’s Bank of China caught the market off guard on Aug. 11 by devaluing its currency by nearly two percent. The offshore yuan has been falling sharply since then and is hovering around four-year lows.
Many banks have revised down their forecasts for how strong they expect the yuan to be by the end of the year, with some expecting it to fall to 6.6 per U.S. dollar.
This afternoon, the yuan was trading at 6.4115 to the dollar.
Words: Reuters
Photo: Myrian Tsen/Coconuts Media
