Renminbi Series: HIBOR moves to double digit for fourth time in 2016

The Hong Kong Interbank offered rate (HIBOR) based on Chinese yuan has once again moved to double digit number for the fourth time this year. In January 2016, Yuan based HIBOR rose to 66.8 percent due to draining of liquidity by People’s Bank of China (PBoC) via state-owned banks to discourage short positions against the yuan and then again in September the overnight HIBOR rose to 23.7 percent. Last Monday, it rose to 12.4 percent before declining below 5 percent. After US Federal Reserve hikes interest rates last night, HIBOR has jumped 4.4 percent today to trade at 11.8 percent.

Analysts at Hong Kong suspect an intervention by the People’s Bank of China (PBoC), which is expected to be more concerned today due to Fed’s hike last night. Today, the Chinese yuan has depreciated to the lowest level since June 2008, trading at 6.935 per dollar.

We suspect the PBoC to fail in arresting the decline in the yuan and hence would try their best to smoothen the decline. We expect the yuan to soon test the 7 per dollar mark and weaken beyond.