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Enoch Yiu

Both Hong Kong dollar and Chinese yuan rose on Monday morning while the interbank interest rate continued to rise.
Hong Kong dollar continued to bounce back on Monday morning to trade at 7.7903, edging up 0.11 per cent. It has been rising for three straight days since big buying orders pushed the currency back above the 7.80 level from the early hours of Thursday. The local currency once hit 7.8294 on Wednesday midnight, its lowest in eight and a half years.
The Kong dollar lost 0.01 per cent last week and is down 0.55 per in the first three trading weeks of the year on concerns of capital outflow, market slump and China’s economic slowdown. The borrowing cost in the interbank market remains high, however, with the 3-month Hong Kong interbank rate, or Hibor, remaining at a five-year high of 0.69, six-month Hibor at 0.95 per cent and 12-month Hibor at 1.33 per cent.
Offshore yuan bounced back on Monday to trade at 6.6077 to the US dollar, stronger by 0.04 per cent and putting an end to the losing streak of the four previous days. The currency rose 0.07 per cent last week.
Onshore yuan weakened by 0.01 per cent to 6.5784 on Monday morning. The currency rose 0.08 per cent last week.
The spread between onshore and offshore yuan has now narrowed to 293 basis points, down from the record 1,400 basis points on January 7.
A Macquarie Research report said the People’s Bank of China (PBOC) has made stabilising the yuan as its top priority.
“Now the PBOC’s priority has clearly shifted to the RMB. Most likely, we will see a stable RMB in the near term,” the report said.
Macquarie said China’s top economic advisor, Liu He, spoke on the RMB with US Treasury Secretary Jacob Lew last Monday and that “such a call would make short-term RMB weakness politically difficult”.
Another reason for China to want to see the RMB to become stable is the record high capital outflows in recent months.
“Policymakers need a stable currency to tame capital outflows,” the report said. “Our view is, in the medium term, the RMB is still driven by the strength of the US dollar. If the dollar index continues to rise, the RMB would remain on the depreciation trajectory against the US$. Over the process, if capital outflows become too high, policymakers would intervene intermittently to stabilise the currency.”
Since the PBOC’s intervention two weeks ago that was aimed at driving away speculators, which temporarily pushed offshore yuan overnight interbank funding to 200 per cent on January 12, the currency has generally been stable.
The PBOC intervention helped the currency rebound, lifting offshore yuan 0.07 per cent last week, adding to a gain of 1 per cent the previous week. This followed the offshore yuan’s fall of 1.72 per cent in the first week of this year.


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Hong Kong dollar and offshore yuan stronger while borrowing cost remains high

One-hundred Yuan notes are seen in this file picture illustration in Beijing in this March 22, 2011 file photo. China's yuan firmed in early trade on Friday after the central bank strengthened its official rate for the first time in nine trading days.REUTERS/Jason Lee/Files

The spread between onshore and offshore yuan has now narrowed to 293 basis points, down from the record 1,400 basis points on January 7. Photo: Reuters

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