Yuan deposits in Hong Kong increased substantially to 57.6 billion by the end of March, but the central bank governor cautioned that investing in the yuan is not a sure bet.

Yuan deposits rose 21 percent month-on-month in March, and were up 72 percent from the 33.4 billion at the end of last year, according to the Hong Kong Monetary Authority (HKMA).

Joseph Yam, the HKMA chief executive, noted that placing yuan deposits has become attractive as the Hong Kong-dollar deposit rates remain low while the yuan continues to appreciate.

But he noted that the yuan's movement is not one-sided.

"The upward trend may change in the short term. For example, the US dollar rebounded 2 percent in the past week, and the yuan slightly weakened," Yam said. "There is a risk for yuan-deposits holders, and investors should be cautious."

Hang Seng Bank General Manager Andrew Fung expects the yuan appreciation to slow down, guessing the currency will climb just 5.5 to 5.6 percent the rest of this year.

And Fung expects that the yuan deposits in Hong Kong won't continue to increase sharply.

The strengthening yuan, weakening US dollar and inflation in Hong Kong recently caused wide concern, but Yam said the Hong Kong dollar has remained stable despite these factors.

He said the exchange rate isn't the major factor behind the rising inflation.

(HK Edition 04/29/2008 page2)