Yuan’s overnight borrowing rate hovers around 7-month high on suspected intervention

Hibor at 7.95pc compared with 8.1617pc reached in the previous session

PUBLISHED : Thursday, 15 September, 2016, 1:28pm
UPDATED : Thursday, 15 September, 2016, 1:28pm

Offshore yuan weakened against the US dollar on Thursday morning, while the currency’s short-term funding rate hovered around a seven-month high, as analysts suspected the Chinese authorities have been intervening in the markets to support the currency ahead of its Special Drawing Rights (SDR) inclusion on October 1.

The offshore yuan, which trades in Hong Kong, dropped 0.03 per cent or 22 basis points to trade at 6.6695 per US dollar on Thursday morning.

Onshore markets are closed on Thursday for the Mid-Autumn Festival holiday. The previous day, onshore yuan trading in Shanghai firmed 0.07 per cent to 6.6747 per US dollar in night trading.

The rise ignored a weaker fixing by the People’s Bank of China, which set the yuan’s mid-point rate against the US dollar at 6.6895 on Wednesday, weaker by 169 basis points from the prior session’s fix.

On Thursday, the overnight Hong Kong Interbank Offered Rate for offshore yuan (CNH Hibor), a gauge of the currency’s borrowing costs, stood at 7.95 per cent, still hovering around a seven-month high of 8.1617 per cent reached in the previous session.

Analysts said the borrowing rates have been at an elevated level recently, due to the Chinese central bank’s intervention to curb short-selling as well as the short-term liquidity strain ahead of the holiday.

“We believe China has a policy preference for relative RMB stability ahead of the important SDR event,” said HSBC analysts in a recent research note.

Effective October 1, the yuan will be included in the International Monetary Fund’s SDR basket as a fifth currency along with the US dollar, the euro, the Japanese yen, and the British pound.

The HSBC analysts expect the Chinese’s currency’s depreciation pressures to be met with less resistance in the fourth quarter of this year, predicting it to be worth 6.8 to the dollar at year end.