(Bloomberg) — Hong Kong’s interbank liquidity has fallen to its lowest level since the global financial crisis. Wider interest rate differentials between Hong Kong and the US have forced Asian financial hubs to make frequent market interventions to protect their currency values.
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The city’s total balance is set to drop to HK$49.2 billion ($6.3 billion) on Thursday after the Hong Kong Monetary Authority settles a previous HK$6.9 billion purchase to keep the local dollar pegged to the US currency. A key indicator of interbank liquidity has already contracted by about 90% from its 2021 peak.
The Hong Kong dollar’s selloff has continued this month as it remains well below US interest rates, where the Federal Reserve has been aggressively tightening policy for over a year. As the HKMA continues to intervene to protect the currency, pressure on local borrowing costs will rise, threatening an early recovery in Hong Kong’s property market.
“As balances approach zero, this is possible and was not the case before the global financial crisis, but Hibors will eventually have to rise and catch up with US interest rates,” Bloomberg Intelligence , referring to the Hong Kong Interbank Offer Rate. “The only way to avoid this is to quickly change the Fed’s policy stance, which remains unlikely.”
As interest rates in Hong Kong are heavily discounted to their US peers, the so-called carry trade – borrowing in local currency at low interest rates and lending in US dollars at high interest rates – is booming. In addition, the HKD has also come under pressure from hedge funds that regularly bet on the collapse of the currency peg, with the HKMA failing so far.
Samuel Tse, an economist at DBS Group Holdings Ltd., said the rise in Hibor, the city’s benchmark for mortgage prices, will exacerbate the burden on homebuyers and prompt property developers to clear their inventory at lower prices. said he would. News of economic recovery. “
–With help from Shawna Kwan.
(Updates with analyst comments, etc.)
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