Foreign Exchange Trading TV

Yuan Demand in Hong Kong May Lead to Twin Rates, Standard Chartered Says

By Andrea Wong - Jul 22, 2010

The yuan may have a stronger exchange rate and higher deposit rates in Hong Kong than in the rest of China as expectation for appreciation spurs demand, said Kelvin Lau, a economist at Standard Chartered Plc.

“We predict investors will want more yuan to invest in yuan-denominated products, but yuan supply at the moment is still restricted to export trade settlement and deposits,” Lau said in a telephone interview in Hong Kong. “Yuan deposit rates in Hong Kong could climb near the mainland’s” to attract more fund inflows, he said.

The yuan’s bid-offer spread was 6.7787 to 6.7789 per dollar in Shanghai as of 3:12 p.m. local time, according to China Foreign Exchange Trade System. In Hong Kong’s interbank market, it was about 6.75 to 6.77 and just two transactions of $1 million apiece have been executed since trading commenced yesterday, according to Gerrard Katz, head of foreign-exchange trading at Standard Chartered. Volumes are “very tiny” because of position limits introduced to prevent speculation, he said.

Deposits of the currency in Hong Kong rose 4.7 percent in May to 84.7 billion yuan ($12.5 billion), Hong Kong Monetary Authority figures show. The yuan has gained 0.7 percent in the past four weeks after the central bank said June 19 it will allow greater flexibility in the exchange rate, ending a two- year dollar peg.

Rate Differential

The People’s Bank of China and the HKMA signed an agreement on July 19 lifting limits on companies buying or selling yuan in the city. Remittances of funds between Hong Kong and the rest of China for investment can be made only with the regulator’s approval, HKMA Chief Executive Norman Chan said.

The one-year yuan deposit rate in China is 2.25 percent, according to data compiled by Bloomberg. HSBC Holdings Plc, Europe’s biggest bank, offers as little as 0.45 percent for renminbi savings deposits in Hong Kong.

“The amount of yuan in Hong Kong is quite small, so it should be that the onshore market has the dominant role, influencing the offshore market,” Peter Pang, deputy chief executive of the HKMA, said in Shanghai yesterday.

Yuan settlement of trade between the city and China more than doubled to 7.2 billion yuan in May, compared with as much as 3 billion yuan in both March and April, the HKMA said last month.

To contact the reporters on this story: Andrea Wong in Hong Kong at at awong268@bloomberg.net;



From Bloomberg published on Jul 22, 2010