News
FINANCIAL SERVICES | Staff Reporter, Hong Kong
view(s)

Peg defense boosts interbank borrowing costs to two-month peak

The HIBOR for a one-month interest period hit 1.38%.

Bloomberg reports that the three-month Hong Kong dollar interbank offered rate (Hibor) has hit a two-month high after the central bank drained liquidity from the financial system by buying around $14.6b of local dollars in order to defend the currency peg to the greenback. 

The Hibor for the interest period of one month has hit 1.38% as of August 16, according to data from HSBC.

With the Hong Kong Monetary Authority (HKMA) spending roughly $75b this year alone to boost the struggling HKD, the aggregate balance is expected to fall to $92.6b which would mark the first time since 2008 that interbank liquidity has dropped below $100b.

Against a backdrop of declining aggregate balance and higher interbank rates, some banks may be prompted to hike prime rates, said Kim Man Ngan, co-head of treasury at China Everbright Bank Co.’s Hong Kong branch.

Also read: HKMA may offer extra Exchange Fund Bills to halt dollar decline

The intervention, which comes on the heels of an earlier purchase of $2.159b in Tuesday, marks the first intervention from the HKMA in three months when the HKD first touched the weak end of its $7.75-$7.85 band against the greenback last April. 

"The HKMA is fully capable of maintaining the stability of the HKD exchange rate and managing large-scale capital flows," HKMA deputy chief executive Howard Lee said in a statement, adding that the Exchange Fund holds over $4t worth of assets to shield against volatility.

The HKD Monetary Base also amounted to over $1.6t and banks held more than $4t of highly liquid assets at the end of 2017, providing a strong buffer in the event of fund outflows, he added.

Here’s more from Bloomberg

Do you know more about this story? Contact us anonymously through this link.

Click here to learn about advertising, content sponsorship, events & rountables, custom media solutions, whitepaper writing, sales leads or eDM opportunities with us.

To get a media kit and information on advertising or sponsoring click here.