Hong Kong Yuan Deposit Declines to Lowest Level in 11 Months

Yuan deposits in Hong Kong dropped for a fifth straight month to the lowest level since May as expectations of currency appreciation receded.

Savings denominated in the Chinese currency fell 1.95 billion yuan ($306 million) in April to 552.4 billion yuan, according to a Hong Kong Monetary Authority statement posted on its website today. The holdings stood at a record 627.3 billion yuan at the end of November.

The yuan weakened 0.92 percent this month versus the dollar, its biggest decline since a dollar peg ended in July 2005, as Chinese exports slumped amid a worsening debt crisis in Europe. Analysts forecast a 2012 gain of 1.8 percent now, a percentage point less than at the start of the year, based on the median estimates in Bloomberg surveys.

“Expectations for yuan appreciation have declined,” said Nathan Chow, a Hong Kong-based economist at DBS Bank (Hong Kong) Ltd. “With yuan trade settlement being more like a two-way street now, there’s less yuan staying behind in Hong Kong through this channel.”

Hong Kong’s banks handled 177 billion yuan of trades settled in the Chinese currency in April, a 36 percent decline from 277.3 billion yuan in March, according to HKMA.

Conversion Quota

Residents in Hong Kong are subject to a daily conversion quota of 20,000 yuan, which bankers are hoping the authority will relax in order to boost the supply of the currency in the city. David Wong, deputy chief executive officer of Bank of China (Hong Kong) Holdings Ltd., said on May 18 that the quota should be reviewed and the city should consider allowing non-residents to open yuan accounts.

The currency declined 0.18 percent today to close at 6.3690 per dollar in Shanghai, according to the China Foreign Exchange Trade System. In Hong Kong’s offshore market, twelve-month non-deliverable yuan forwards traded at 6.4305, a 1 percent discount to the onshore exchange rate, according to data compiled by Bloomberg. The average yield on Dim Sum bonds climbed 46 basis points, or 0.46 percentage point, to 5.6 percent in May, Bank of China data show.

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