HONG KONG: After yuan deposits in Hong Kong saw lacklustre growth for most of 2014, November brought a surprising jump.
During November - the last month for which data is available - the Hong Kong-Shanghai stock connector programme got under way, and China's central bank surprised markets with the country's first interest rate hike in more than two years.
Even with those developments, deposits in the world's largest offshore yuan center had their biggest rise since January, thanks to Hong Kong's relaxation of a daily conversion limit and attractive yields bank offered depositors.
However, analysts do not expect that pace of accumulation to continue, given that channels to allow foreign investors to invest in China are broadening, while cautious views on the Chinese currency will likely curb investors' interest to hold the yuan.
Contrary to some expectations, the connector's launch did not cause a drop in Hong Kong's yuan deposits in November, though its early stage has caused some money to move into the mainland.
From Nov. 17 until the start of January, 78 billion yuan has gone "northbound" from Hong Kong to the mainland, while 13 billion yuan went "southbound", draining 65 billion yuan from the offshore market.
In November, there were factors that helped Hong Kong collect more yuan deposits.
The Hong Kong Monetary Authority, in an emailed response to Reuters said that month's increase stemmed from "a host of factors".
It cited higher yuan customer deposit rates offered by some banks, removal of the 20,000 yuan daily conversion limit applicable to Hong Kong residents, and continued net inflows from yuan trade settlement transactions.
Hong Kong scrapped the daily 20,000 yuan conversion limit imposed on residents for 10 years to facilitate investment under the stock connect, a move that was seen boosting demand for yuan and yuan products.
But analysts say that's a one-off boost and will not sustain the expansion of yuan deposits if the Chinese currency stays weak and investors lose interest in yuan assets.
The redback lost 2.4 percent against the dollar in 2014, its first significant annual loss since the landmark revaluation in 2005. Further policy easing by the central bank to shore up a sluggish economy will keep downward pressure on the currency, which ended the year at 6.2040.
UBS economist Wang Tao, in a report on Wednesday, said she expects the yuan to fall to 6.35 by the end of 2015 amid an environment for emerging market currencies that's likely to be volatile.
Meanwhile, some banks that used high rates to compete aggressively for yuan deposits in recent months have started to retreat following China's interest rate cut.
Apple Daily in Hong Kong reported on Wednesday that Bank of Communications Hong Kong had stopped offering extra-high interest rates to yuan depositors.
Asked about the report, the bank told Reuters it "always draws up promotion strategies based on market situation".
In September, the bank increased yuan interest for nine consecutive days, pushed its nine-month deposit rate to 3.39 percent, the highest by any bank.
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