Hong Kong interbank borrowing rates yesterday jumped to their highest levels since January as the Hong Kong dollar was hit by concerns about the impact of sustained yen weakness on the yuan and a worsening local economy. Traders said interest rates could trend further upwards. 'The honeymoon is over for the Hong Kong Government and we have to realise there is going to be more pain before things get better,' one said. 'The external factors throughout Asia are becoming increasingly unfriendly,' another dealer said. The benchmark one-month and three-month rates went as high as 12 per cent during midday trading before closing at about 10.7 per cent, up from 8.75 per cent (one-month) and 9 per cent (three-month) the previous day, traders said. The one-week rate rose to 8.5 per cent from Tuesday's 7.5 per cent, while the six-month rate rose to 11 per cent from Tuesday's 9.5 per cent. The 'tom-next' rate - overnight lending priced and drawn down today and repaid tomorrow - closed at 8.5 per cent, compared with Tuesday's 6 per cent. Traders said negative economic growth in Hong Kong had not been fully discounted by the market and yesterday's surge in interest rates was an awakening to the situation. 'The Government's economic rescue package was cosmetic at best and will do very little to turn around the economy . . . the markets are only beginning to realise that now,' a dealer at a Japanese investment bank said. The situation could deteriorate further this week as downward pressure on the Hong Kong dollar increased, he said. It traded between $7.7485 and $7.75 yesterday. He said there were rumours the Hong Kong Monetary Authority (HKMA) intervened yesterday, defending the dollar at $7.75. 'If the HKMA was really in the market, then there will be more interest rate pressure on Friday when they settle their trades,' the dealer said. Traders said there was evidence of substantial net selling of Hong Kong dollars as the average balance at the monetary authority's Liquidity Adjustment Facility window on Tuesday fell to $3.2 billion, the lowest level since January.