Hong Kong yuan pool faces record liquidity crunch
Hong Kong faced its worst yuan liquidity crunch on Tuesday, forcing monetary authorities to pump liquidity into the system.
The seven-day interbank offered rate for offshore yuan hit 10.1 per cent, versus the onshore rate of 2.5930 per cent. The overnight rate was 7 per cent as of the market close. This was the biggest climb in the yuan’s history in the city since the process of its internationalisation began in 2009.
Reuters reported the situation had forced the Hong Kong Monetary Authority to intervene by providing a 10 billion yuan intraday repurchase facility.
“The HKMA called us … to check CNH liquidity and asked whether we need yuan funds,” Reuters quoted a source at an American bank in Hong Kong.
The overnight implied yuan lending rate jumped to 20 per cent in the morning and fell back to about 8 per cent in the afternoon, a trader told Reuters, adding the HKMA had injected yuan liquidity in the early afternoon.
Since Beijing’s shock devaluation on August 11, the interbank rate for offshore yuan has climbed 6.6125 points – an extraordinary 190 per cent. The offshore rate in Hong Kong is now 289 per cent more expensive than in the onshore market, which is moderated by the People’s Bank of China.
Tuesday’s surge came as accumulated cross-border transaction orders made out over the previous week from panicking treasurers hit the city all at once. Hong Kong’s limited offshore pool for yuan was overwhelmed, making bankers scramble in the interbank market for extra yuan.
“The CNH (offshore yuan) market in Hong Kong has all along been a very active one,” said a spokesman at the HKMA. “The surge of CNH hibor mainly reflects the volatility of external markets [on Monday] night and recently.”
A day’s cross-border settlements made through Hong Kong usually amount to one trillion yuan.
Before the currency panic, most companies placed orders between three days and a week in advance with banks. Banks in normal circumstances would have enough time to order cash in advance to honour the flow.
