OMG! There is a huge shortage of Renminbi now! - Part 2

For those not in the finance industry, CNH means Offshore Chinese Yuan while CNY means Onshore Chinese Yuan.  Overnight CNH Hibor is still high at 8.7%.  Can you imagine paying 8.7% just for borrowing Renminbi for an overnight?

What are the implications for a rising Renminbi?

By right, the Moody's downgrade of China's credit rating would cause Renminbi to depreciate because more investors would stay away from China resulting in lesser capital inflows and more outflows.  However, the opposite happened because of intervention by the China government.  The rising Renminbi will affect a few things in the world because China is the 2nd largest economy.

The China property market will start to damper because it becomes more expensive for foreign investors to invest in properties due to unfavourable exchange rates.  The burgeoning debt situation will also be reduced spontaneously because of a stronger Renminbi, especially for the foreign currency denominated debts.  Foreign companies in China and those trading with China will also start to stock up on Renminbi because of this shortage.

All in all, the rising Renminbi will cause the China government to increase interest rates to reduce the demand and keep the yuan in China.  Therefore, fixed income fund manager will be monitoring the spreads between Hibor & Shibor for any arbitrage opportunities.