Hong Kong Yuan Interbank Rate Drops Most Since August After Jump

The cost of borrowing yuan in Hong Kong slumped on speculation its ascent to a two-month high deterred Chinese banks from accessing the currency in the interbank market.

The overnight Hong Kong Interbank offered rate tumbled 355 basis points, the most since Aug. 26, to 4.78 percent on Friday, according to a fixing by the Treasury Markets Association. The gauge surged to a two-month high of 8.33 percent on Thursday.

The People’s Bank of China has asked some onshore banks to stop offering cross-border financing to offshore lenders and ordered a halt to borrowing from the mainland through bond repurchases, people familiar with the matter said on Nov. 19. Hong Kong Monetary Authority Chief Executive Norman Chan said on Thursday a contraction in the city’s yuan supply eased in November.

"Chinese banks aren’t that active in sourcing the yuan in the offshore market after the rate shot through 8 percent," said Ryan Lam, the Hong Kong-based head of research at Shanghai Commercial Bank Ltd. "The cost was too high. Though some banks do have greater yuan funding needs after the cross-border financing suspension, it doesn’t mean they have to meet those needs immediately."

Lam said he expects the yuan overnight interbank rate in Hong Kong to stay between 5 percent and 6 percent for the rest of December, compared with an average of 3.25 percent over the past year, as banks still have to meet their year-end funding needs.

Yuan Savings

Savings in the Chinese currency in Hong Kong fell 4.6 percent to 854.3 billion yuan ($134 billion) in October from a month earlier, data from the city’s monetary authority show. That came after an 8.5 percent drop in September.

The one-week yuan interbank rate fell 160 basis points on Friday, the most since Aug. 27, to 4.72 percent, according to the Treasury Markets Association fixing. The offshore yuan climbed the most in a month, tracking an overnight surge in the euro, after the European Central Bank’s stimulus fell short of some economists’ forecasts.

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