Date
19 November 2017
The offshore yuan hit 6.32 to the dollar at one point last week, marking a two-year low, after China cut interest rates for the second time in less than four months. Photo: Bloomberg
The offshore yuan hit 6.32 to the dollar at one point last week, marking a two-year low, after China cut interest rates for the second time in less than four months. Photo: Bloomberg

RMB deposit tipped to yield 7% over one year

China’s recent move to cut benchmark interest rates for the second time in less than four months has led to the nation’s currency falling to a two-year low against the US dollar.

The offshore yuan hit 6.32 to the greenback at one point last week.

But Standard Chartered expects the currency to recover at a moderate pace in the coming year after the recent downswing.

The bank predicts a 3 percent gain for the renminbi, implying a rebound to the 6.12 level against the dollar by the end of this year, according to the Hong Kong Economic Times.

One-year fixed deposit interest rate in China is around 4 percent at present. If Standard Chartered is correct about the exchange rate outlook, a renminbi deposit could yield total annual return of 7 percent, which is very decent in an era of low interest rates.

For more aggressive investors, they may consider investing in the so-called dim sum or offshore bonds.

As there were quite a number of bond defaults at the end of last year, it is accepted that dim sum bond issuers will have to offer higher yields to attract investors, points out Tommy Ong, managing Director of DBS Bank (Hong Kong).

The average yield of dim sum bonds was 6 percent in 2014. The figure is expected to jump to around 8-10 percent this year.

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RC

EJ Insight writer

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