Offshore Renminbi – Access granted

The offshore Renminbi (CNH) market contracted in April from the previous month. The Standard Chartered Renminbi Globalisation Index (RGI) fell 0.8% m/m, to 2,154 from a revised 2,171 in March - the first monthly drop since October 2012. The cross-border payments and Dim Sum bond components drove the index decline.

In addition, a particularly high volume of CNH FX transactions in March (partly reflecting large swings in the spot price) resulted in the upward revision of the March RGI reading, creating a higher base for m/m comparison in April. A more stable Chinese yuan (CNY) exchange rate since the start of April has caused FX turnover to ease back to lower levels, weighing on the RGI; however, the benefits of a steadier CNY did not yet feed through to the RGI sub-components for deposits and Dim Sum bonds in April. Across-the-board weakening in cross-border payments was possibly a delayed result of CNY volatility in Q1.

"The RGI is expected to start rising soon given much-improved sentiment towards the CNY and a wave of recent policy liberalisation steps, and offshore deposits is expected to receive a boost from increased southbound flows via the Shanghai-Hong Kong Stock Connect programme in the coming months", according to Standard Chartered.

The impending launch of the Mutual Recognition of Funds (MRF) scheme in July, and the Qualified Domestic Individual Investors (QDII2) programme possibly in H2-2015, should further boost Renminbi usage.

The People's Bank of China (PBoC) also recently granted offshore Renminbi clearing banks and other participating banks access to the onshore repo market. Supportive policy measures is likely to boost two-way cross-border flows and offshore liquidity. They also underscore Beijing's commitment to faster capital account opening. This would strengthen the case for including the Renminbi in the IMF's Special Drawing Rights (SDR) currency basket, which would foster further internationalisation. A 60% chance of SDR inclusion this year, adds Standard Chartered.