Liq­uid­ity crush props up off­shore yuan

Chi­nese cur­rency’s bor­row­ing cost in SAR hits new high

China Daily (Hong Kong) - - HK - By LUO WEITENG in Hong Kong sophia@chi­nadai­

T he off­shore yuan’s bor­row­ing cost in Hong Kong hit a fresh high on Wed­nes­day, re­flect­ing an in­ten­si­fied liq­uid­ity squeeze as the Chi­nese main­land’s cen­tral bank tight­ens its grip on the weak­en­ing cur­rency.

The overnight Hong Kong In­ter­bank Of­fered Rate of the yuan soared 8.6 per­cent­age points to fix at 15.18 per­cent — its big­gest gain since Septem­ber.

Amid muted trad­ing ses­sions ahead of the year-end hol­i­day break, the yuan re­mained flat against the US dol­lar. But an­a­lysts be­lieved that the de­pre­ci­a­tion pres­sure on the ren­minbi is poised to ex­tend into next year, mak­ing 2017 an­other fluc­tu­at­ing year for the cur­rency.

The off­shore yuan in the SAR edged down 0.18 per­cent to 6.9705 against the US dol­lar as of 6:25 pm on Wed­nes­day, mak­ing the spot yuan on track to post a year-round loss of more than 6 per­cent against the green­back.

Me a nw h i l e , t h e Pe o p l e’s Bank of China set the mid­point rate at 6.9495 per US dol­lar prior to the marke t open­ing — weaker than the pre­vi­ous fix of 6.9462.

This re­sulted in the on­shore yuan be­ing 0.1 per­cent weaker at 6.9585 per US dol­lar as of 6:25 pm in Shang­hai, putting the cur­rency in the spot mar­ket on course to fin­ish the year with a loss of more than 7.1 per­cent against the green­back.

“The yuan will re­main on a de­pre­ci­a­tion path in 2017,

set to ex­tend into 2017, the overnight bor­row­ing rate for the yuan jumped to 15.18 per­cent in Hong Kong on Wed­nes­day — its high­est level in three months.

with cap­i­tal out­flows per­sist­ing due to struc­tural fac­tors like asse t di­ver­si­fi­ca­tion, cycli­cal driv­ers like growth and yield dif­fer­en­tials, as well as wan­ing con­fi­dence in the cur­rency,” said a re­port from HSBC. “Th­ese out­flow pres­sures will be­come more acute if the strong dol­lar en­vi­ron­ment per­sists.”

A clus­ter of mone­tary tight­en­ing poli­cies, in a sign of the countr y ’s de­ter­mi­na­tion to curb cap­i­tal out­flows, has been at­trib­uted to the yuan’s surg­ing bor­row­ing cost in the on­shore mar­ket.

For­eign ex­change re­serves in the world’s se­cond-largest econ­omy plunged more than 23 per­cent from a peak of nearly $4 tril­lion two years ago to $3.05 tril­lion last month. This stands in sharp con­trast to the 32-per­cent growth of for­eign cur­rency bank de­posits owned by main­land house­holds in the first 11 months of the year, in­di­cat­ing that the cap­i­tal ex­o­dus is a real is­sue for the na­tion.

“Vo l a t i l i t y i n t h e y u a n could thus be higher than usual in the first quar­ter of 2017, as the mar­ket di­gests the im­pact on the dol­lar from the new eco­nomic poli­cies of the in­com­ing US ad­min­is­tra­tion,” HSBC noted.

Yi Xian­rong , a Q in­g­dao Un i v e r s i t y p r o f e s s o r a n d for­mer Chi­nese Academy of per­cent So­cial Sci­ences re­searcher, agreed with the pro­jec­tion, join­ing the cho­rus of ap­pre­hen­sion over the yuan’s con­tin­ued de­pre­ci­a­tion in the com­ing year.

Fac­tors such as the fasterthan-ex­pected mone­tary tight­en­ing path in the US and an ex­change of tense rhetoric on the yuan’s ex­change rate be­tween the US and China, that could lead to a se­ri­ous trade con­flic t be tween the two coun­tries, are likely to ex­ert fresh down­ward pres­sures on the Chi­nese cur­rency, he said.

Mo Ji, chief economist at Amundi Hong Kong , how­ever, be­lieved that the yuan will be a cur­rency sta­bi­lizer in 2017 — a phe­nom­e­non that’s still un­der­es­ti­mated by the mar­ket.

“We t h i n k t h a t e x p e c t a - tions of fur­ther de­pre­ci­a­tion of the yuan have fi­nally nor­mal­ized away from cri­sis sta­tus,” he said.

With the green­back hav­ing gained much strength by ap­pre­ci­at­ing more than 3 per­cent since Don­ald Trump’s up­set elec­tion win, the yuan has weath­ered the shock nicely by de­pre­ci­at­ing just 1.4 per­cent, im­ply­ing the rel­a­tive hid­den strength in the cur­rency, Mo ob­served.

“China is con­tribut­ing sta­bil­ity to the world econ­omy and mar­kets both in eco­nomic and cur­rency terms in 2017. Look­ing ahead, the larger and more open the Chi­nese econ­omy be­comes, com­pared to the closed off and smaller US econ­omy, rel­a­tively speak­ing at least, it will re­write ev­ery­thing we cur­rently know,” he added.

We think that ex­pec­ta­tions of fur­ther de­pre­ci­a­tion of the yuan have fi­nally nor­mal­ized away from cri­sis sta­tus.”

Mo Ji, chief economist at Amundi Hong Kong plunge to $3.05 tril­lion last month in China’s for­eign ex­change re­serves

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