China c.bank to lift HK yuan clearing interest rate - sources

HONG KONG, March 22 (Reuters) - China's central bank intends to increase yuan clearing interest rates in Hong Kong to boost development of the territory's offshore yuan market and expand circulation of the Chinese currency offshore, sources said on Tuesday.

Higher interest rates would boost the attractiveness of yuan-denominated deposits, encourage the introduction of more yuan products and increase usage of the yuan in the offshore market .

"The central bank is discussing details with banks and there will be an increase in interest rates although it is believed it will not lift the rate to China's domestic levels in one go," a source told Reuters.

Yuan circulation in Hong Kong has risen rapidly since China lifted controls on the usage of the currency in the territory last July. Yuan deposits quadrupled to 370.6 billion yuan in January from a year earlier.

But interest in using yuan assets in the offshore market has eased somewhat after an initial surge, with investors complaining about the lack of investment products and relatively lower interest rates compared with the mainland.

The People's Bank of China's one year deposit benchmark rate is at 3.0 percent.

The sole clearing bank in Hong Kong, BOC Hong Kong (Holdings) Ltd is paid an annual interest rate of 0.99 percent from the PBOC for the excess yuan it deposits with PBOC's Shenzhen branch after clearing.

BOCHK then pays 0.865 percent to banks in Hong Kong for the yuan they deposit with it after charges and fees. These banks then offer yuan deposit rates of between 0.4 and 0.6 percent to customers, barely higher than Hong Kong dollar deposit rates, which are virtually zero.

PBOC representatives were not immediately available for comment. (Reporting by Victoria Bi; Editing by Chris Lewis)