Yuan Interbank Rates in Hong Kong Jump on Reserves Rule, Supply

The overnight yuan interbank rate in Hong Kong surged to a five-month high as banks set aside cash for regulatory requirements and on speculation authorities are tightening funding conditions to curb declines in the currency.

The yuan weakened to a five-year low last week on expectations policy makers are seeking a further drop as the U.K.’s vote to leave the European union weighs on China’s export outlook. Borrowing costs are rising also because lenders have to comply with a reserve requirement rule on yuan deposits held on the mainland at offshore participant banks, said Frances Cheung, head of Asia ex-Japan rates strategy at Societe Generale SA in Hong Kong. Such a requirement was imposed in January to make speculative bets against the yuan costlier.