Hong Kong has not suffered capital outflows during current US rate rise cycle, with total bank deposits up, HKMA boss says

Hong Kong has not seen capital outflows amid the current interest rate rise cycle, with total deposits at local banks increasing over the 14-month period, according to Hong Kong Monetary Authority CEO Eddie Yue Wai-man.

Yue said while the series of US interest rate rises since March last year has seen many investors shift their Hong Kong dollar assets in Hong Kong over to US dollar ones to earn a higher interest rate, the money has not in many cases actually left the Hong Kong capital market.

“Funds that flow out of the Hong Kong dollar and are converted into other currencies (such as US dollars) may still stay in Hong Kong’s financial system,” Yue said in an article posted on the HKMA website on Wednesday, just hours ahead of a further expected hike in US interest rates of 25 basis points, which would be the tenth rate rise in 14 months.

“A useful indicator is the overall deposit level of the Hong Kong banking system,” said Yue. Total deposits in the Hong Kong system have remained stable during the current rate rise cycle, he said.

“The deposit amounts have grown by 1.4 per cent from the end of April last year to the end of March this year, suggesting that outflows from the Hong Kong dollar system do not necessarily mean capital is leaving Hong Kong’s financial system.”

Yue also played down worries over a series of HKMA interventions to defend the peg over the period, which has seen the aggregated balance – the sum of balances of banks’ clearing accounts kept with the HKMA – fall to its lowest level since November 2008.