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Interest rates
BusinessBanking & Finance

Hong Kong’s interbank rate climbs to two-year high as HKMA’s intervention saps liquidity from city’s currency market

  • Three-month Hong Kong interbank offered rate (Hibor) rose by six basis points to 1.35 per cent on Monday, the highest since May 2020
  • One-month Hibor rose by one basis point to 0.61 per cent

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A street market in Hong Kong on 7 June 2022. Photo: EPA-EFE
Bloomberg

Hong Kong’s benchmark borrowing costs climbed to a two-year high as liquidity eased, adding to the risks for an economy that’s struggling to recover from a coronavirus outbreak.

The three-month Hong Kong interbank offered rate, or Hibor, rose six basis points to 1.35 per cent on Monday, the highest since May 2020. The one-month gauge, a key reference for mortgages, increased one basis point to 0.61 per cent, a level last seen in June 2020.

Liquidity is declining after the authorities bought the local currency and the Hong Kong Monetary Authority (HKMA) followed in the Federal Reserve’s footsteps in raising interest rates. Monetary policy in the financial hub moves in lockstep with the US given the local dollar’s peg to the greenback.
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“Hong Kong dollar liquidity is getting tighter after several rounds of money outflows,” said Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets in Hong Kong. “Hibor is getting more sensitive to the US short term,” he said, adding that the three-month rate may climb past 3 per cent by year-end.

The increase in borrowing costs may worsen the toll on an economy that’s already reeling from a virus outbreak and the global impact of the war in Ukraine. The city’s government last month cut its 2022 growth forecast to a range of 1 per cent to 2 per cent from a previous prediction of 2 per cent to 3.5 per cent.
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