Aug 18 – Hong Kong interbank rates surged on Monday, reflecting a string of recent cash withdrawals by the city’s de facto central bank and sharp rebounds in the local dollar.
The Hong Kong Interbank Offered Rate , a key barometer of liquidity, rose across the board, with key tenors jumping to levels last seen in May, when the Hong Kong dollar strengthened and prompted the Hong Kong Monetary Authority to intervene to defend the currency peg within 7.75 and 7.85 per U.S. dollar.
The overnight HIBOR leapt to 1.96768%, the loftiest level since May 7, while the three-month tenor – a benchmark for bank funding costs – rose to 2.18333%, also a peak since May.
The local dollar has seen sharp swings this year, oscillating between the two ends of the trading band.
The intervention in May prompted the HKMA to inject the local currency quickly before the excess liquidity dragged the Hong Kong dollar down to hit the weaker side of the band and force it to tighten cash conditions from June onward.
Those operations saw the aggregate balance, a gauge of cash at banks, drop to HK$53.71 billion as of Monday, down from a high of HK$176.45 billion in June and not far from HK$45.1 billion at end-April.
“HIBORs have turned more responsive to additional liquidity drainage,” said Frances Cheung, head of FX & rates strategy at OCBC Bank, referring to HKMA’s most recent operations last week to drain a total of HK$10.441 billion to maintain the peg.
“Investors have turned more cautious as reflected by spot USD/HKD not recovering back to near the 7.8500 level as it did shortly after previous rounds of intervention.”
The HKMA has stepped in to withdraw liquidity and defend a weakening Hong Kong dollar 12 times since June.
The local dollar last traded at 7.8244 on Monday, after hitting a high of 7.8120 on Friday.
The strength in the Hong Kong dollar also comes as investors in mainland China are making hefty purchases of Hong Kong-listed stocks via the southbound leg of the Stock Connect scheme, traders and analysts said.
“From here, we maintain a mild upward bias to short-end spreads, as part of a normalisation process, while the prospect of equity-related inflows remains promising,” OCBC’s Cheung said.
Southbound stock inflows hit a record high of HK$35.9 billion last Friday.
This article was generated from an automated news agency feed without modifications to text.
