China sells 10 billion yuan of bills in Hong Kong to protect currency ahead of National Day, US trade war talks
- The People’s Bank of China’s auctioned 10 billion yuan (US$1.4 billion) of six-month bills in the embattled city on Thursday
- It comes ahead of the October 1 holiday which will celebrate the 70th anniversary of the founding of the People’s Republic as well as next month’s talks in Washington
China’s central bank made its latest move to shore up the yuan exchange rate in Hong Kong on Thursday, which in turn projected a vote of confidence in the embattled city as an international financial hub.
Thursday’s sale came a day after China’s Ministry of Finance reopened a 4.5 billion yuan (US$631 million) sovereign bond issuance in Hong Kong, which is the main offshore trading centre for the yuan, with bank deposits totalling 616 billion yuan (US$86 billion) at the end of July.
The PBOC’s decision to issue the bills to drain yuan funds from the Hong Kong banking system was an apparent sign of its primary motivation to prevent a further depreciation of the currency, analysts said, as having less liquidity in the market will push up borrowing costs and make it more expensive for speculators to bet on a weakening yuan.
Both sales in Hong Kong drew decent interest because of expectations that China will keep a relatively loose bias in its monetary policy easing stance given the sluggish growth of its economy.
“The auction was well received, reflecting decent demand for yuan-denominated paper offshore given expectations that China will keep its interest rates anchored,” said Frances Cheung, Westpac Banking's Asia head of macro strategy.