The Monetary Authority of Singapore will introduce a facility to provide up to 5 billion renminbi (805 million U.S. dollars) in overnight liquidity to financial institutions in Singapore, it said on Friday.
The move is part of its measures to boost the fast-growing offshore RMB market.
The overnight facility, to be launched on July 1, will give financial institutions the assurance that their short-term RMB funding needs will be met, the central bank said.
The new facility will complement an existing facility that allows banks to borrow the Chinese currency on a term basis for trade, direct investment and market stability purposes.
MAS' announcement coincided with a directive issued by the Nanjing branch of the People's Bank of China (PBoC), China's central bank, that said eligible corporations and individuals in the Suzhou Industrial Park will be allowed to conduct cross-border RMB transactions with Singapore.
Banks in Singapore will be allowed to lend RMB to corporations in the Suzhou park. Firms at the park can issue RMB-denominated bonds in Singapore, while equity investment funds in the industrial park can directly invest in Singapore-based corporations.
"The introduction of cross-border RMB channels between Singapore and the Suzhou Industrial Park will facilitate greater financing for companies operating in the Suzhou Industrial Park, encourage direct investment in corporations in Singapore and broaden the range of RMB activities that can be conducted out of Singapore," said Jacqueline Loh, deputy managing director of the Monetary Authority.
"We look forward to similar arrangements being put in place in the near future to allow cross-border RMB transactions between Singapore and Tianjin Eco-City," she said.
Both the Suzhou Industrial Park and the Tianjin Eco-City are flagship mega cooperation projects involving the governments of China and Singapore.
Singapore is the second largest offshore clearing centre for transactions involving the RMB.