Renminbi Series: China goes to holiday with rates elevated

China has gone to holidays with the offshore rate elevated way over normal. Today and tomorrow are holidays in China over Mid-Autumn festival. People’s Bank of China (PBoC) has a history of intervening in the offshore rates market indirectly and many a time before any major festival.

Last Thursday, there was a sudden spike in CNH-HIBOR (Hong Kong Interbank Offered Rate) and the rate jumped from just 1.57 percent to 5.45 percent by closing. Friday, it was down slightly; so the market was thinking that the jump could have been a temporary phenomenon but from Monday onwards it has been rising again and by yesterday’s closing it was trading at 8.16 percent. Today the mainland is closed but in Hog Kong the rate is slightly below 8 percent.

It is not clear whether the rate is higher due to PBoC intervention to discourage yuan speculation, while it’s on holiday or the additional demand for the yuan ahead of holiday or some other factors but if it is not the first two and the rates remain elevated after the holidays, it would certainly demand careful scrutiny.

The yuan is currently trading at 6.67 per dollar.