Update | Yuan rebounds but investors head for the exits
Worrying signs of capital outflow as interbank rates shoot up following shock devaluation
The yuan strengthened yesterday for the first time in four days after strong policy support by the central bank, but a spike in interbank rates suggests capital outflow following the shock devaluation continues unabated.
The yuan halted a three-day slide after the People's Bank of China yesterday raised its reference rate for the first time since Tuesday's devaluation and promised intervention in the event of extreme swings.
Onshore yuan gained 0.11 per cent against the US dollar while offshore yuan strengthened 0.4 per cent to 6.4378 as a result. But soaring short-term borrowing costs in the interbank markets on the mainland and in Hong Kong indicated investors were pulling out of the yuan.
The overnight Shanghai interbank offered rate (Shibor) shot up 1,380 basis points to 1.667 per cent over the past week and is now at a near four-month high. One-month Shibor jumped to 2.495 per cent, a one-week high.
The interbank rate is the rate banks charge to lend to each other. A jump in rates is an indication of liquidity crunch.
Bankers and economists said investors had been rushing out of yuan-denominated assets and were relocating to assets outside the mainland and denominated in other currencies, particularly the US dollar.
