Cash & Liquidity ManagementInvestment & FundingCapital MarketsHong Kong Monetary Authority Launches Reference Rate for Offshore Yuan

Hong Kong Monetary Authority Launches Reference Rate for Offshore Yuan

The Hong Kong Monetary Authority (HKMA) has launched an interbank reference rate for the offshore yuan market, a long-awaited move that aims to help create more hedging options for those investing or trading in the Chinese currency.

The move to create a CNH Hang Seng Interbank Offered Rate (HIBOR) fixing responds to concern about a lack of hedging options that have restrained enthusiasm for holding the yuan, which Beijing wishes to encourage.

The yuan-denominated debt or so-called ‘dim sum’ bond market has grown rapidly in recent months in response to growing demand from investors seeking yuan assets. Market players have resorted to using imperfect derivatives to hedge their interest rate risk such as non-deliverable forwards and currency swaps.

For each of the eight tenors covered, namely overnight, one week, two weeks, one month, two months, three months, six months and 12 months, the fixing will be calculated by averaging the middle quotes after excluding the highest three quotes and lowest three quotes provided by the 16 contributing banks, which include Agricultural Bank of China, Bank of China (Hong Kong) and Bank of Communications.

Peter Pang, the HKMA’s deputy chief executive officer, said that the CNH HIBOR launch “will support the growth of the renminbi (RMB) market by providing a benchmark for loan facilities.

“The fixing will also facilitate the development of a variety of RMB interest rate products, increasing the ability with which market participants can manage the interest rate risk of their RMB businesses.”

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