HIBOR reaches highest level since January spike

CNH-HIBOR (Hong Kong Interbank Offered Rate) that is used in Hong Kong for offshore Yuan lending has reached its second highest point on record after January when the lending rate touched an all-time high around 67 percent. After a long holiday in greater China, HIBOR reached 23.683 percent this morning, up from 7.95 percent on Thursday. On Wednesday, it was at 8.16 percent. As of now, it is far from clear what is it that has been causing the interest rates to soar. Last time it was People’s Bank of China (PBoC) in January that drained funds from Hong Kong via state-owned banks. It could be PBoC again, intervening in the currency market to limit the speculation on Yuan. But at this point, it can’t be pinpointed.

In a separate but not unrelated event, Bank of International Settlements (BIS) has issued warning on Chinese banks. In its quarterly report, it said that China’s debt to GDP gap has reached 30.1 percent as of first quarter of 2016, which is more than 3 times than what is considered as the danger level. The indicator, which is based on the work of the U.S. economist, Hyman Minsky is considered as the single best indicator of stress in the banking system. There could be as much as $1.3 trillion worth of loan defaults in China. Yuan is currently trading around 6.67 per dollar in the offshore market.