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Renminbi tracks rise in key HK lending rate

The offshore renminbi exchange rate grew stronger than its onshore counterpart on Thursday after a closely-watched borrowing rate in Hong Kong for loans denominated in China’s currency broke back into the double digits for only the fourth time in 2016.

The Hong Kong interbank borrowing rate for offshore renminbi (CNH) overnight loans (CNH Hibor) rose another 4.4 percentage points to 11.8 per cent today, taking the overnight rate to its highest level since last Monday’s 12.4 per cent.

Analysts have voiced suspicions that previous spikes in CNH Hibor reflected intervention by The People’s Bank of China intended to sop up liquidity in the offshore market, thereby driving up the cost of betting on continued renminbi devaluation.

The PBoC may be more concerned about market expectations than usual today following the Fed’s rate rise, which has hammered emerging markets currencies throughout the Asia Pacific region.

Even the onshore renminbi (CNY), which has to trade within a 4 per cent band set by the PBoC, was not immune. Instead of pulling the offshore rate stronger when trade began on Thursday morning, as is typical, the onshore rate softened to match its more market-driven partner, weakening 0.43 per cent against the dollar to Rmb6.9321.

But after Thursday’s rise in CNH Hibor showed tightening liquidity in the offshore market, the CNH exchange rate firmed to be Rmb6.9318, or 0.1 per cent stronger than the onshore rate.

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