Hong Kong Interbank Offered Rate (HIBOR), which is the cost of borrowing yuan for overnight loans reached the highest level since January last year, when it spiked to 66.815 percent. On Wednesday, HIBOR was at 16.95 percent, Thursday it jumped to 38.335 percent and today it has jumped to 61.333 percent.

The People’s Bank of China (PBoC) has been draining liquidity from the market, in order to discourage traders from shorting the currency and almost all analysts since last year's move have associated a spike in the borrowing cost in Hong Kong to PBoC’s effort to drain liquidity via state-run banks. While the borrowing cost spikes, both the offshore and the onshore yuan rose by the most in a year against the dollar. The offshore yuan, which is largely traded in Hong Kong, rose from 6.97 per dollar to 6.82 per dollar. Compared to the offshore counterpart, the movements in the onshore component were small, which is currently trading at 6.92 per dollar.  

Due to a sharp strengthening of the yuan in past couple of day, the PBoC has fixed the yuan by the most since it was liberalized in 2005. The fix is the central mid-point of the daily allowable 4 percent trading band, which is set by the PBoC every morning before the market opens. As the offshore yuan staged it biggest two-day gains on record, PBoC fixed the yuan 0.9 percent stronger at 6.8668 per dollar.