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Foreign Exchange

HKMA lifts restrictions on renminbi positions

The Hong Kong Monetary Authority has relaxed positioning restrictions and and adjusted risk management limits in a move that looks set to increase liquidity in the offshore renminbi market.

The HKMA said it had made the decision with a view to “achieving an orderly development of business in an environment of controllable risks.” Taking into account authorised institutions’ enhanced risk management practices and the development of the offshore renminbi market in Hong Kong, the HKMA, raised the limit for net open positions to 20% from 10%.

Under the new rules, all authorised institutions should restrict their net open positions (NOP) in the renminbi – whether long or short – to 20% of their renminbi balance sheets.

“The higher NOP limit should be conducive to promoting market liquidity, as smaller participants in the offshore CNH market would benefit,” says Frances Cheung, senior strategist at Credit Agricole CIB.

Also potentially boosting CNH liquidity, the HKMA announced adjustments to renminbi risk management limits.

Participating authorised institutions had been required to maintain the sum of renminbi cash, settlement account and fiduciary account balances at no less than 25% of its renminbi customer deposits.

The HKMA said in view of the development of renminbi sovereign bonds issued in Hong Kong by mainland China’s Ministry of Finance and the market liquidity of renminbi bonds traded in the mainland interbank bond market, it had decided to allow holdings of these investments to be included in the calculation of the renminbi risk management limit.

“We see a major market impact coming from the adjustments to renminbi risk management limits, which could potentially release CNH liquidity into the market,” says Cheung.

“As there are more eligible assets being included in the calculation of risk management limits, some CNH cash could potentially be released.”

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