Cost of betting against offshore yuan falls, back at early Jan levels

Hong Kong

THE cost of betting against the yuan in Hong Kong fell back to where it was at the start of the year, highlighting the shortcomings of China's attempt to starve the offshore market of funds while flooding domestic banks with cash to support the economy.

The Hong Kong InterBank Offered Rate for three-month yuan loans fell to 4.87 per cent last week, 59 basis points lower than the Dec 31 fixing and down from a record 10.42 per cent on Jan 12. The comparable rate in Shanghai is 3.10 per cent and Chris Morrison at US$965 million hedge fund Omni Partners says funds will flow offshore, providing a pool of yuan to be borrowed and sold, unless China imposes draconian capital controls.