The CNH Hibor rate

by on January 12, 2016 at 7:27 pm in Current Affairs, Economics | Permalink

As I write the overnight rate is over sixty-six percent (yikes, although the frequency of reporting that figure is unclear).  Hibor, by the way, is the Hong Kong Interbank Offer Rate.

Why so high?  The most natural interpretation is that many traders are shorting the renminbi, and in response the Chinese central bank is trying to crush them.  There is a short squeeze, and the high overnight rate reflects the need to make good on contracts now.

More generally, it seems both the central bank (PBOC) and the big Chinese banks are buying up yuan like crazy, especially offshore yuan.  There is a free (but PBOC-influenced) Hong Kong rate, and the controlled rate internal to China. The freely traded offshore yuan have been cheaper, although about a day ago the two rates converged.  The PBOC wants to keep the currency value relatively high, to limit capital flight and to maintain credibility.

In other words, an epic battle is going on.  Round one (or is this round three)? goes to PBOC.

1 Ray Lopez January 12, 2016 at 7:55 pm

I have an uncanny ability to make every country I visit go into crisis, due to chance alone (numerous examples). I will be visiting HK soon. Stay tuned…

2 Meets January 12, 2016 at 8:10 pm

Can you visit Syria next?

3 Thiago Ribeiro January 12, 2016 at 10:25 pm

I can’t remember who, during WW II, said whatever city he moved to the Nazis took the power there. He left Germany, then Austria, then Paris… and he had just bought or rented an apartment in New York. Maybe you should just postpone your travel.

4 B Cole January 12, 2016 at 7:57 pm

OT, but srill about central banks. The Fed just “awarded” $100 billion in reverse repos, evidently to “drain cash from the financial system.” Huh?

5 Steven Kopits January 12, 2016 at 8:02 pm

“The PBOC wants to keep the currency value relatively high, to limit capital flight and to maintain credibility.”

If the market expects a devaluation, doesn’t the act of keeping the currency high incentivize capital flight? Personally, I think the PBoC’s credibility is in tatters. Why is the PBoC fighting a devaluation so visibly necessary? It’s ridiculous. They need to devalue the yuan now — now — to 7.0 RMB/USD. That would bring the yuan back in line with the yen and won, where the market should have reason to believe it would be stable.

My take, from Friday, hasn’t changed: http://www.cnbc.com/2016/01/08/china-might-be-succeeding-in-fixing-its-economy-commentary.html

6 罗臻 January 12, 2016 at 9:09 pm

This is the fourth time the PBoC has given bears a better entry point in the past year. Each time the absolute move is getting larger.

7 Brian January 12, 2016 at 9:41 pm

I do not claim to know the PBoC’s intentions, but I do believe that there are a lot of companies in China who owe or synthetically owe lots of money in USD. Even worse, in the past some of these companies have essentially sold puts on the yuan, and although last summer should have taught some of them how bad an idea that is, I doubt it taught everyone. This is why they are ignoring the fact that ALL currencies are down against the dollar and focusing solely on the yuan/usd rates and also why they are intervening in the offshore markets

8 Harun January 13, 2016 at 11:20 am

Can you wait until I close my yuan CD in June?

I knew I was boned when I couldn’t make it last April to close it.

9 Tom Warner January 12, 2016 at 9:14 pm

Since this is just the rate for borrowing yuan, not Hong Kong dollars, it’s not that important to the HK banking system or economy. I’m not sure how many people are absolutely dependent on their ability to borrow yuan in HK. This does seem fairly technical and related to shorting. Whether it counts as a win depends on how much it cost, in various ways. My guess on that is no.

10 Yancey Ward January 12, 2016 at 10:55 pm

This is simply the latest in the recent shots at speculators and those ever devious short-sellers. In other words, the PBOC is in total desperation mode. They are fucked, and they know it.

11 Silas Barta January 12, 2016 at 11:14 pm

Oh no! A whole 0.13% per day!

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