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[HONG KONG] The cost to borrow the offshore renminbi in Hong Kong dropped to the lowest since data became available in 2013, putting pressure on the Chinese currency even as the US dollar weakens.
The one-month Hong Kong interbank offered rate for the renminbi – known as Hibor – dropped 11 basis points to 1.46 per cent, according to official data.
The record low rate is basically a sign of how easy it is for traders to source the Chinese currency in the city and allows them bet on further renminbi weakness. It comes amid expectations Beijing will keep liquidity ample to boost its economy and allow a managed renminbi depreciation to offset the impact of US tariffs.
The offshore renminbi slipped as much as 0.3 per cent on Tuesday (Apr 22) to around 7.31 per US dollar. It has recovered around 2 per cent from a record low hit this month.
Weakness in the greenback has lessened the need for the People’s Bank of China to step in to steady the renminbi. Like many global peers, the currency has benefited from a global exodus from US assets that has weighed on the US dollar.
“The offshore renminbi’s borrowing costs declined as the US dollar is too weak and there is no need for PBOC intervention to support the renminbi,” said Ju Wang, head of greater China FX & rates strategy at BNP Paribas. “A loose funding situation offshore is also helpful for China to keep a weak renminbi to counter tariff risks, rather than a strong one.”
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Recent inflows from the mainland into Hong Kong’s stock market have also helped to replenish the offshore renminbi’s liquidity and pushed Hibor lower, according to Ken Cheung, chief Asia FX strategist at Mizuho Bank.
Mainland investors purchased a net HK$14.1 billion (S$2.4 billion) of these shares on Tuesday, set for the biggest daily amount in almost two weeks. They rushed to the offshore market this month to snap up tech shares and also due to some Hong Kong stocks’ cheaper pricing compared with onshore peers.
The PBOC is seen allowing the renminbi to depreciate amid escalating trade tensions with the US. The Chinese central bank guided the currency lower by cutting its daily reference rate beyond a closely watched level this month, stoking bets Beijing may weaken the renminbi even further to counter some impacts of the tariffs.
“Cheap offshore renminbi funding cost corresponds with PBOC’s recent onshore fixing guidance for moderate renminbi weakness,” said Fiona Lim, a senior foreign-exchange strategist at Malayan Banking. “Drivers such as economic pressure at home, trade conflicts and broader US dollar weakness act as counterbalancing factors to keep renminbi somewhat stable.” BLOOMBERG
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