Update | Offshore yuan borrowing costs spike to 110 pc as PBOC beats back short sellers
Offshore yuan appreciates up to 2 per cent in two days while onshore yuan hits an 11-month high amid liquidity drain
Hong Kong’s offshore yuan borrowing costs shot up to 110 per cent on Thursday, reflecting the highest level in a year as the People’s Bank of China took action to beat back sellers of the currency.
The central bank’s intervention drove the offshore yuan in Hong Kong up 1.18 per cent on Thursday to an intraday high of 6.7845 per US dollar before it staged a turnaround, easing back down to 6.8316 in evening trading, but still up 0.67 per cent after rising 1.3 per cent on Wednesday.
King International Futures chief strategist Jasper Lo Cho-yan said offshore yuan liquidity dried up substantially on Thursday afternoon as traders struggled to find yuan to cover their short positions while mainland banks held back from selling yuan in the market.
The Hong Kong Interbank Offered Rate for offshore yuan, known as the CNH Hibor, shot up to 110 per cent in late afternoon on Thursday, the highest level since January 13 last year when the rate briefly touched 200 per cent before later easing to 90 per cent.
Thursday's market rate was significantly higher than the official morning fix by the Treasury Markets Association at 38.33 per cent, which is more than double the 16.95 per cent fix on Wednesday, already a three-month high.
“This is widely believed to be the intervention of the PBOC in the offshore yuan market to drive interest rates up to add costs to the yuan short sellers,” Lo said.