Most Yuan Interbank Rates Rise in Hong Kong as PBOC Curbs Supplyby and
Reserve requirements to include overseas banks' yuan deposits
Tighter liquidity boosts cost of shorting yuan offshore
The cost of borrowing yuan for a week or more increased in Hong Kong’s interbank market after China’s central bank said it will impose reserve-requirement ratios on yuan deposited onshore by overseas financial institutions from Jan. 25.
The one-week Hong Kong interbank offered rate for loans climbed 370 basis points to 11.9 percent on Monday, while the one-month rate rose 251 basis points to 11.84 percent, Treasury Markets Association fixings show. They surged to respective records of 33.79 percent and 15.74 percent last week as intervention by the People’s Bank of China to support the yuan in offshore trading tightened the supply of the currency.
The central bank said it will impose reserve-requirement ratios on yuan deposited onshore by overseas financial institutions from Jan. 25, without saying what level would be used. The ratios will be the same as are applied to mainland banks, currently 17.5 percent for major lenders, according to people familiar with the matter. Foreign central banks, sovereign wealth funds and international lending agencies won’t be affected by any changes, the People’s Bank of China said.
"In the short term, this new rule will tighten offshore liquidity because the banks only have one week to set aside the reserves,” said David Qu, a rates strategist at Australia & New Zealand Banking Group Ltd. in Shanghai.
Overnight yuan Hibor fell 32 basis points on Monday to this year’s low of 1.78 percent. It surged to a record 66.82 percent last week.