Hong Kong’s central bank will start providing Chinese currency loans to the city’s banks today to prevent a shortage of liquidity from destabilising the offshore renminbi market.
The Hong Kong Monetary Authority announced yesterday that it would offer one-week renminbi loans in exchange for high-quality collateral such as Chinese government bonds.
“Such a backstop facility will calm nerves as banks will be able to approach the monetary authority for more renminbi funds whenever necessary,” HSBC wrote to clients. Liquidity squeezes have shaken the offshore renminbi money markets three times this year, with short-term interest rates spiking as lenders scrambled for funds.
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