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.
The PBOC six-month bills were issued at a rate of 2.89 per cent, slightly higher than the 2.82 per cent rate on six-month bills sold in June, and similar to the 2.90 per cent rate on three-month bills last month.
The auction was well received, reflecting decent demand for yuan-denominated paper offshore given expectations that China will keep its interest rates anchored
The PBOC has already issued 130 billion yuan (US$18.2 billion) of central bank bills with time frames of three months, six months and one year through six issuances since it reached an agreement with the Hong Kong Monetary Authority a year ago. Thursday’s sale was also the third since anti-government protests that started in June aroused concerns over the city’s economic future and its status as a magnet for international capital.
It said in previous statements that the sales will enrich the market for yuan-denominated products, improve the yuan offshore bond yield curve and facilitate the use of the Chinese currency.
This week’s sale is just one of the measures used by Beijing to control speculators and bearish market sentiment, with others including imposing margin requirements on offshore yuan trades and using its countercyclical factor in setting the midpoint of the yuan’s daily trade range.
The yuan was exchanging hands at 7.1223 per US dollar on Thursday.
