HK banks up rates ahead of long October holiday

Trying to prevent cash squeeze on renminbi funds.

Banks in Hong Kong have begun offering higher deposit rates to retain renminbi funds ahead of a likely cash shortage before China's National Day Holiday from Oct. 1 to 7.

Hong Kong’s offshore renminbi clearing bank, Bank of China Hong Kong, raised its preferential interest rate for one-month new renminbi funds above RMB20,000 (US$3,300) by 20 basis points to 2% until Sept. 14.

The Hong Kong branch of Bank of Communications is also offering a preferential deposit rate of 3.4% for 6-month and 9-month renminbi funds above RMB5 million beginning this Monday. For funds above RMB500,000 and RMB50,000, the rates are 3.2% and 3%, respectively.

The interest rates already surpass the onshore one-year benchmark renminbi deposit rate at 3%, which can be increased by 30 basis points.

Hong Kong is already grappling with a scarcity of renminbi funds due to stagnant growth in deposits and more channels to invest offshore renminbi in mainland markets. The upcoming October holidays are only expected to worsen conditions.

The Hong Kong Monetary Authority said renminbi deposits fell slightly to US$113.6 billion in July. Hong Kong’s offshore renminbi deposit pool has shrunk for two straight months as increased renminbi repatriation via programs such as the Renminbi Qualified Foreign Institutional Investor resulted in tighter liquidity.