The cost of borrowing yuan in Hong Kong dropped to the lowest level in almost two years after demand from speculators betting against the currency declined after an overnight retreat in the dollar.
The Hong Kong Interbank Offered Rate for one-week loans fell 35 basis points to 1.5 percent, a Treasury Markets Association fixing shows. That’s the least since April 2014. The three-month rate declined 36 basis points to a nine-month low of 2.77 percent, while the overnight rate was little changed at 1.06 percent. The yuan sank to a five-year low in January before erasing its losses for the year this month.
“There’s generally stronger confidence in the yuan after the National People’s Congress meetings as well as the weakening of the dollar, so short positions have been squeezed,” said Ryan Lam, Hong Kong-based head of research at Shanghai Commercial Bank Ltd.
The currency has returned to a more “normal, rational and fundamentals-driven” trend, and the nation doesn’t need to use foreign-exchange policy to boost trade, People’s Bank of China Governor Zhou Xiaochuan said on March 12. Premier Li Keqiang, speaking at the end of the 12-day NPC, said the economy is still at an early stage of industrialization and urbanization, and retains room to grow on those fronts.
Yuan borrowing costs in Hong Kong, the biggest center for offshore financing in the currency, surged to records across all tenors in January as the PBOC bought the currency to curb speculation.