An interbank rate for offshore renminbi is to be launched in Hong Kong, a move that will help investors and goods traders hedge their exposure to the Chinese currency.
The city’s Treasury Markets Association said on Wednesday that it will begin publishing fixings from June this year, covering tenors ranging from overnight to 12 months.
The Hong Kong authority will base the rates on contributions from at least 15 banks in a similar way to how it currently calculates the Hong Kong interbank offered rate (Hibor), which is for Hong Kong dollar-based transactions.
The rates will be referred to as CNH Hibor – CNH being the shorthand for renminbi traded in Hong Kong.
The decision to press ahead with a long-awaited establishment of a renminbi Hibor fixing comes at a time when the system of interbank rates is under intense scrutiny following high-profile scandals and amid a series of rate-fixing investigations across the globe.
However, market participants see the new rate fixing as an important step in encouraging global use of the renminbi.
“This development should be welcomed by the market as the CNH Hibor fixing could serve as a benchmark for a number of [offshore renminbi] products including bank loans, floating-rate dim sum bonds and potentially interest rate swaps,” said Frances Cheung, Asia strategist at Crédit Agricole, in a note to clients.
Difficulties in hedging renminbi exposure have been cited as a major barrier to increased cross-border trade settlement in the Chinese currency.
Reserve Bank of Australia deputy governor Philip Lowe said on Tuesday that the availability and pricing of instruments to hedge renminbi currency risk was the “most important factor” that was slowing the uptake of renminbi invoicing in bilateral trade.
HSBC also said on Wednesday that it had executed its first CNH Hibor swap contract, providing an early indication of what the rate might be.
The bank completed a one-year over-the-counter interest rate swap with a value of Rmb100m, at a fixed rate of 2.64 per cent.
In a separate move, the Hong Kong Monetary Authority, the territory’s de facto central bank, removed restrictions on net open positions and liquidity ratios in the Chinese currency, giving banks more freedom to decide how they manage their renminbi holdings.
Paul Mackel, head of Asian FX strategy at HSBC, said that the changes would improve liquidity in the offshore renminbi market and encourage more interbank lending.
“The currency will now be treated like any other in Hong Kong, not being as subject to regulations as before and this should increase the attractiveness of using offshore renminbi as a trade and investment currency,” he wrote in a note to clients.
The Hong Kong Banking Association said that it welcomed both moves. “The new developments will enhance renminbi liquidity management of participating banks in providing renminbi services to customers. In particular, the launch of the CNH Hibor fixing, the first outside China, is pivotal to Hong Kong’s long-term development as the offshore renminbi hub.”