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Hong Kong Yuan Deposits Post Record Monthly Drop in December

Updated on
  • Yuan savings in the city fall to 546.7 billion yuan end-2016
  • Shrinking deposits are exacerbating money-market volatility

Yuan deposits in Hong Kong posted their biggest monthly drop on record as the currency’s steepest annual depreciation in more than two decades undercut its appeal for savers.

Savings in the Chinese currency fell 12.9 percent on the month to 546.7 billion yuan ($79.4 billion) in December, the biggest drop since local banks started taking such funds in 2004, Hong Kong Monetary Authority data showed Friday. The onshore exchange rate weakened 6.5 percent last year as capital outflows picked up amid higher U.S. interest rates, while the offshore rate fell 5.8 percent.

Supply of the Chinese currency has been shrinking offshore as policy makers curb capital outflows and carry out suspected intervention to weed out bearish speculators. These measures, as well as a decline in the U.S. dollar, have helped buoy the yuan in January. The offshore yuan is headed for a 1.6 percent advance this month, the most since October 2011.

“The drop in offshore yuan deposits confirms thin liquidity conditions in Hong Kong,” said Gao Qi, a Singapore-based foreign-exchange strategist at Scotiabank. “In the coming months yuan liquidity will remain relatively tight in Hong Kong and offshore yuan interbank rates will surge again if worries about yuan depreciation resume.”

Offshore yuan interbank rates have seen occasional sharp jumps over the past year. With the shrinking liquidity pool, a slump in bond sales and expanded access to onshore markets, the role of an offshore yuan market is increasingly in question. On a yearly basis, Hong Kong’s yuan savings fell by 304 billion yuan, the most on record. It is still the largest offshore pool of the Chinese currency.

While the uncertainty in the exchange rate will keep exerting pressure on the city’s yuan pool, higher interest rates offered by banks could stabilize the supply of the currency, HKMA said in an e-mailed statement to Bloomberg News on Friday. Standard Chartered Plc. raised its yuan deposit rate to 5 percent for new funds of at least HK$500,000 ($64,443) worth of yuan, Hong Kong Economic Times reported, citing the lender’s spokesman.

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