Hong Kong yuan borrowing rate spikes after highest fixing since February

[HONG KONG] Hong Kong's overnight yuan borrowing rate spiked briefly on Thursday, amid worries of tighter liquidity, after the daily benchmark was set at a near seven-high.

The CNH Hong Kong Interbank Offered Rate benchmark (CNH Hibor), set by the city's Treasury Markets Association (TMA), surged to 5.446 per cent, the highest level since Feb 19.

On Wednesday, the benchmark's setting was 1.56767 per cent.

After Thursday's setting, the overnight borrowing rate rose to almost 7 per cent, but later dropped to around 3 percent.

"Everyone is wondering the reason and there are a lot of guesses," said the deputy head of treasury at a Chinese bank in Hong Kong. "One guess is that falling yuan deposits in Hong Kong have made people worried that yuan liquidity will become tighter in the coming months."

Yuan deposits in Hong Kong, the world's biggest offshore yuan centre, in July fell 6.2 per cent to 667.1 billion yuan (S$134.86 billion) from a month earlier, reaching the lowest level since March 2013.

A senior trader in Hong Kong said there were rumours that China's central bank will act to raise offshore yuan interest rates "in order to avoid having the yuan weaken, but nobody can prove it."

At 0750 GMT, the offshore spot yuan traded at 6.6705 per US dollar, barely changed from Thursday's 6.6722 opening.

REUTERS