Yuan time deposits in Hong Kong banks could offer a lucrative investment opportunity amid the current market turmoil and continued strength in the mainland currency, which hit a record high versus the US dollar.
Bank of China Hong Kong (2388) yesterday raised the three-month rate on a minimum deposit of 20,000 yuan (HK$25,033) to an annualized 2.3 percent, from 2.1 percent.
The rate for a six-month time deposit of at least 20,000 yuan was hiked to 2.4 percent per year from 2.3 percent.
BOC Hong Kong's move is likely to prompt other lenders to follow suit.
"It is relatively safer to put your money in banks for a higher rate than investing in yuan-denominated products through schemes such as qualified foreign institutional investor," Ample Finance Group director Alex Wong Kwok- ying said.
"The value of QFII assets could drop as the cost of investment is rising."
Compared to inflation-linked bonds issued by the government, the local yuan pool is much bigger and more flexible, Wong added.
The government is set to issue the third-batch of iBonds in June, worth no more than HK$10 billion.
Meanwhile, Hang Seng Bank (0011) extended the deadline of its preference yuan deposit rate to June 30, from March 28. The bank offers an annualized rate of 2.28 percent for minimum deposits of 20,000 yuan for three months, and 2.38 percent for six months.
The yuan rose to a record high against the US dollar yesterday after the People's Bank of China fixed the central parity rate at a stronger 6.2586, compared to Monday's 6.2674.
The currency rose 0.15 percent to close at 6.1986 per US dollar in Shanghai, marking its strongest level since the launch of the yuan trading system in 1994.
It has risen about 3 percent since July last year.
So far this year, the currency has strengthened 0.5 percent against the greenback.
Raymond Yeung Yu-ting, senior economist at ANZ, said the yuan remains stable for investment due to low volatility, although the currency's trading band had doubled in the past 12 months.
Ngan Kim-man, head of yuan business strategy and planning at Hang Seng Bank, said local lenders are in need of the mainland currency due to outflows, prompted by Taiwan and Singapore starting their own offshore yuan businesses.