2011-04-02 10:11

HONG KONG - BOC Hong Kong (Holdings) Ltd said China's central bank has lowered the yuan clearing interest rate in Hong Kong by 27 basis points to 0.72 percent, effective Friday.

The move will take the rate to the same level as the interest rates paid by the central bank, the People's Bank of China (PBOC), on excess reserves of mainland financial institutions held by the PBOC.

A spokeswoman for BOC Hong Kong, the territory's sole yuan clearing bank, said commercial banks in Hong Kong can open a yuan fiduciary account with BOC Hong Kong from April 8 for yuan clearing, and they would receive an annual interest of 0.629 percent on their deposits.

Hong Kong Monetary Authority, the territory's de facto central bank, said on Thursday it would launch an account service denominated in the Chinese currency to help banks in the territory reduce their counter-party credit risk to the clearing bank.

BOC Hong Kong has also revised down yuan deposit interest rates for its retail customers by 20 basis points, the spokeswoman said.

A US hedge fund said on Friday the rate cut would not hurt demand for yuan in the territory as the Chinese currency is widely expected to appreciate against the US dollar over the long term.

Some banking sources told Reuters last week that PBOC was considering to increase clearing interest rates in Hong Kong to boost the development of the territory's yuan offshore market.

The sources said the central bank was discussing with banks the likelihood of revising upward deposit rates paid on offshore yuan deposits, to align them closer with mainland deposit rates.

Higher interest rates would boost the attractiveness of yuan-denominated deposits, encourage the introduction of more yuan products and increase usage of the yuan in the offshore market.