Investors hedge funds as liquidity leans on Hibor

Increased liquidity in the banking system is putting pressure on Hong Kong interbank lending rates (Hibor), as fund managers hedge against currency risks.

'Because Hong Kong's banking system is very liquid at the moment, fund managers are using Hong Kong dollar forwards to hedge their exposure, which is putting pressure on Hong Kong interest rates,' said Anthony Ngai Mo-hung, Standard Chartered Bank's SAR and regional treasurer.

Mr Ngai said the hedging activity was purely commercial, as fund managers protected their investments against currency risks.

On July 16, the Hong Kong Monetary Authority bought back US$100 million from the foreign-exchange market, allowing it to release HK$755 million into the banking system.

This restored the aggregate balance to positive territory of HK$434 million, compared to the previous day's negative level of HK$341 million.

Yesterday's closing aggregate balance was a positive HK$579 million.

Mr Ngai said regional tension and concerns over the mainland economy were also pushing up Hibor.