HKMA sees faster-than-expected rise for yuan
The yuan may rise by a further 6.7 per cent by the end of the year, faster than market expectations, according to the Hong Kong Monetary Authority.
Hong Kong's de facto central bank made the forecast yesterday when it said local lenders could spend as much as 75 per cent of their yuan deposits to invest in yuan-denominated bonds in the city.
HKMA said in its quarterly report that it expected the yuan to appreciate to between 7.42 and 7.11 against the US dollar by the year's end, based on the currency being depegged in July 2005. This is compared with some analysts' estimates of as much as 7.20.
The yuan ended at 7.6188 to the US dollar yesterday, down from 7.618 on the previous close. It hit a record of 7.6155 during Wednesday trade.
HKMA chief executive Joseph Yam Chi-kwong yesterday said depositors with yuan and banks that had taken yuan deposits were allowed to invest in yuan bonds.
Banks could use as much as 75 per cent of their customers' deposits for such investments, according to a HKMA the circular.
However, Mr Yam expected the secondary market for yuan bond trading to be quiet initially given the limited amount of yuan deposits, which stood at about 25 billion yuan.
Investors might want to hold the bonds until maturity to profit from the stable interest payments and potential yuan appreciations, he said.
He suggested that after the bond sales, Hong Kong could also handle share tradings in yuan as well.
'It will also be possible for the equity channel to follow suit ... for share listing and trading to be denominated in yuan, if there is demand,' Mr Yam said.
Stanley Wong Yuen-fai, a deputy general manager at ICBC (Asia), expected banks to be keen on buying yuan bonds as yuan deposits at present were not a very profitable business.
Lenders got only 0.86 per cent interest by placing yuan deposits at the clearing bank but had to pay about 0.7 to 0.75 per cent to depositors. Yuan bonds, on the other hand, could pay about 2.5 per cent in interest or more.
Mainland policy lender China Development Bank is set to sell yuan bonds next week.
The retail tranche would be at least one billion yuan while the portion for banks could be two to three times bigger.
