Hibor hits fresh 10-year high of 1.58 per cent on fears of liquidity crunch
The rise in bank funding costs comes as the city’s de facto central bank raised the base lending rate after the US Federal Reserve’s interest rate announcement
A gauge of Hong Kong’s bank funding costs, which hit a 10-year high, suggests the current liquidity squeeze in the banking sector could last longer than expected.
The one-month Hong Kong interbank offered rate (Hibor) rose 2 basis points to 1.60 per cent on Thursday, its highest level since 2008. Three-month Hibor was up for a seventh straight day to 2.01 per cent. The increase in Hibor rates shows that it was getting harder and costlier for banks to obtain funds in the interbank market, where they extend loans to each other to manage their short-term liquidity operations.
Similarly, a number of banks have also raised their term fixed deposit rates in tandem in recent months as their short-term borrowing costs rise and in preparation for the eventual rate increases by the de facto central bank.
The reduction of available liquidity in the financial system comes as the city’s de facto central bank raised the base lending rate on Thursday after the US Federal Reserve’s interest rate announcement, and also in anticipation of strong seasonal demand as the quarter comes to an end as well as for a number of large initial public offerings from next month.
But the squeeze in liquidity seems to be especially pronounced after the Hong Kong Monetary Authority’s intervention in the foreign exchange market in April, when it spent HK$70.35 billion (US$8.97 billion) to defend the currency’s peg to the US dollar.