China sets record one-day yuan increase as offshore yuan rallies

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China’s central bank set the official yuan midpoint at 6.8668 per dollar prior to market opening on Friday. The strengthened midpoint rate came after a sharp rise in the offshore yuan spot rate over the past two trading days.

The fix was at 6.9307 on the previous day. The upward move over the previous day’s fixing was the greatest since 2005, according to Reuters.

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Meanwhile, yuan’s borrowing cost, the Hong Kong Interbank Offered Rate in Hong Kong, known as HIBOR, surged to a record high, according to Hong Kong’s Treasury Markets Association. In the meantime, the offshore yuan, which had increased 0.86 percentage points on Wednesday, the most in the past 12 months, slid on Friday morning.

China’s central bank will not tolerate a continued sustained depreciation of the yuan and allow the tendency to grow stronger, according to the Chinese Securities Journal. “We can predict that in 2017, the central bank will conduct more anticipating management in order to maintain a stable exchange rate."

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The report also said that a relatively high HIBOR means a tightened liquidity in the offshore market, putting pressure on those who are trying to short sell.