October’s CNH deposit base dropped less than predicted, indicating a stabilisation of the offshore renminbi market and the narrowing of the spread between both offshore and onshore markets.
Offshore renminbi deposits merely fell -0.6% to Rmb618.5 billion (US$2.9 billion) in October from Rmb622 billion in the previous month.
According to a research note released today (November 30), this is probably due to a stabilisation of investor sentiment towards the CNH than a rapid uptake of cross-border channels to buy cheaper offshore renminbi to remit back onshore.
Hong Kong Monetary Authority (HKMA) data suggested that cross-border trade settlement remained relatively active, despite the discount between offshore and onshore renminbi.
October’s renminbi remittance for trade settlement declined only 15% month-on-month compared to June’s 30%, suggesting that cross-border renminbi is driven by more than currency price differential.
“It now appears that trade settlement and offshore renminbi accumulation is more persistent and stickier than we had originally assumed,” said Daniel Hui, a Hong-Kong based currency researcher at HSBC in the research note.
The British bank had previously established a framework that given the limited use for CNH offshore to-date, the primary demand to buy and hold offshore renminbi comes from savers and investors.
Hence, this sharp deterioration in sentiment and investor demand will lead to an imbalance between supply and demand and a weakness in CNH compared to CNY, as witnessed in September.
“The discounting of CNH would then provide an incentive for corporates to buy RMB offshore for cross-border transactions, reducing the supply of CNH until it was better matched with end demand, helping the onshore-offshore spread re-converge,” said Hui.
However, the recent decline illustrates the overall resilience of the offshore renminbi system.