Offshore yuan gains as Beijing steps up defense of its currency

The offshore yuan strengthened, building on its biggest weekly gain since October, and the cost of borrowing the currency climbed in Hong Kong after China stepped up efforts to curb bearish bets on the exchange rate.
The central bank said it will impose reserve-­requirement ratios on yuan deposited onshore by overseas financial institutions from Jan. 25, without saying what level would be used. The ratios will be the same as are applied to mainland banks, currently 17.5 percent for major lenders, according to people familiar with the matter. The move will lock up at least 220 billion yuan (USD33.4 billion) of funds, according to estimates from Guotai Junan Securities Co. and Haitong Securities Co.
“What we’re seeing is China trying to cut liquidity in the offshore market by making it more expensive for offshore banks to channel their yuan there,” said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Basically it’s a continuation of keeping liquidity in the offshore market tight, which will lead to higher funding costs and prevent speculators from shorting the yuan.”
The yuan traded in Hong Kong rose 0.38 percent to 6.5888 a dollar as of 6:59 p.m. local time yesterday, after gaining 1.05 percent last week, according to data compiled by Bloomberg. It strengthened 0.08 percent to 6.5790 in onshore trading in Shanghai as the People’s Bank of China raised it daily reference rate by 0.07 percent, the most in four weeks. The one-week Hong Kong interbank offered rate for loans climbed 370 basis points to 11.9 percent yesterday. Bloomberg