PBOC battles speculators by boosting offshore yuan interest rate above 9pc

The battle between the People’s Bank of China and currency speculators was back on Friday, as the yuan ended the five-day trade with its first weekly drop against the US dollar in six weeks.

Hong Kong traded yuan was at 6.5239 per US dollar at 4.15pm, weaker by 0.04 per cent from Thursday and down 0.28 per cent his week. The offshore yuan forward contracts were also weaker, changing hands at 6.78 on Friday compared to 6.70 at the start of the week.

Traders said China’s central bank had asked mainland banks not to sell any yuan but only buy the currency on Friday. The overnight interbank interest rate for offshore yuan, or CNH Hibor, shot up on Friday to 9.265 per cent, up from 4.45 per cent on Thursday. This is the highest overnight lending rate since the PBOC intervened on January 12.

The one-week lending rate rose to 7.9 per cent while the three-month rate inched up to 6.5 per cent, from 5 per cent on Thursday.

Heng Koon How, senior currency strategist of Credit Suisse, said the yuan, Korean won and other Asian currencies were dragged lower due to weak economic data around the region.

“This is a clear sign of renewed offshore yuan weakness and it appears that the market has reverted back to the negative fundamentals affecting China and Asia. The higher offshore yuan rate curve and tightening of liquidity is a reaction function of renewed offshore yuan weakness,” Heng said.