HONG KONG, Sept 4 (Reuters) - The Hong Kong Monetary Authority (HKMA) said on Friday financial institutions that participate in yuan business will only need to sign a bilateral agreement to obtain yuan funds instead of a tripartite one from Nov. 23.
The move to streamline the process came after the People’s Bank of China surprised the market by weakening its currency by nearly 2 percent last month, which sent both onshore and offshore yuan markets into a tailspin.
Overnight lending cost in the offshore yuan market surged to more than 20 percent last week due to tight liquidity.
The HKMA said financial instituions would only need to sign a bilateral agreement with it to borrow yuan funds under the liquidity facility, instead of signing a tripartite agreement with the HKMA and the yuan clearing bank.
The regulator will collect interest payment directly from financial institutions instead of going through the yuan clearing bank, and interest payment will be settled on a daily basis instead of every month under the new arrangement, it said in a statement.
The HKMA launched a 10 billion yuan ($1.57 billion) intra-day yuan liquidity facility ahead of the stock connect scheme bewteen Shanghai and Hong Kong that was rolled out in November, to meet increasing demand for the yuan.
The regulator injected yuan liquidity into banks amid surging money market rates in the offshore yuan market last week to ease the surging borrowing cost, sources have told Reuters.
$1 = 6.3549 Chinese yuan renminbi Reporting by Michelle Chen; Editing by Simon Cameron-Moore