HK funding costs surge after HKMA defends peg

By BLOOMBERG

HONG KONG • Hong Kong’s interbank borrowing costs climbed across the curve, as the city’s currency interventions continued overnight, taking this week’s total to HK$16.8 billion (RM8.61 billion).

The three-month Hong Kong dollar interbank offered rate, known as Hibor, jumped by the most in more than two months, while the onemonth rate climbed by the most since June 22.

The Hong Kong Monetary Authority (HKMA) bought HK$14.6 billion of local dollars on Wednesday, according to the HKMA’s page on Bloomberg, after the currency declined to the weak end of its trading band.

With the HKMA having begun intervening again this week, the aggregate balance in the city will fall to HK$92.6 billion today. This would mark the first time since 2008 that the measure of interbank liquidity dips below HK$100 billion.

The Hong Kong dollar traded at HK$7.8496 per dollar as of 5:09pm local time yesterday, near the weak end of its permitted range of HK$7.75-HK$7.85.

“The outflow of funds from Hong Kong is a normal and inevitable process for Hong Kong dollar interest rate normalisation,” HKMA CEO Norman Chan wrote in a statement yesterday, adding that the authority will continue to buy the Hong Kong dollar at 7.85.

“With the aggregate balance falling, interbank rates will climb gradually and press some lenders to hike prime rates,” said an expert in Hong Kong. “But Hong Kong still has ample liquidity. Pressure on the local currency may continue, as rate gaps are wide enough for carry trade and bleak stock sentiment drives outflows.”