Rising interest rates are upon us. The so-called carry trade is back. While everyone knows the unprecedented era of global cheap money is over, Hongkongers will start to feel the pain. It comes at a bad time as the local economy is still mired in Covid-19 restrictions on travel and cross-border movement with the mainland. It’s time to buckle up. The Hong Kong Monetary Authority, the city’s de facto central bank, stepped in on Saturday morning, the fourth intervention in three days, to support the local dollar. In itself, there is nothing to worry about, as the Hong Kong-US dollar peg is backed by one of the world’s largest financial war chests through its HK$4.6 trillion (US$586 billion) Exchange Fund. It does, however, signal the arrival of a rising rate cycle. Banks’ prime lending rates are primed, pardon the pun, to go up. And the carry trade, triggered by higher rates in the United States, is back in full force. Currency arbitrageurs are taking advantage of the price differences to sell low-yielding products in the Hong Kong dollar to buy higher-yielding ones in the US dollar. The selling of Hong Kong dollars therefore drives the exchange rate to the weaker end of its trading band under the peg and forces the HKMA to intervene. Until recently, the carry trade was in the other direction, leading to ample liquidity within the local banking system. We will have to keep intervening in the market as the carry trade will likely continue in light of the US interest rate rises in the months ahead. Banks look set to revise prime rates, though they have been slow to do so. But the rising rates trend, well-advertised by the US Federal Reserve, means there is no other way but up. Hong Kong sells US$1.5 billion to defend currency peg as capital heads for US Long-suffering savers may like that, but borrowers long accustomed to low repayments will find everything is up, including mortgages. Flat owners facing years if not a decade or two of mortgage repayments will complain. But given the city’s unaffordable property prices, a market slowdown may not be unwelcome. The US Fed, fighting inflation, has flagged 10 increases in interest rates through the end of next year, which will force the HKMA to raise its rate in lockstep to maintain the city’s currency peg. Meanwhile, the mainland economy, on which Hong Kong’s is highly dependent, is also experiencing capital outflow. Like other currencies, the weakening yuan may make Chinese exports more competitive. However, Chinese authorities have been increasing imports to try to resolve the trade war with the US and to secure vital commodities and resources from other countries. As global supply chains are still subpar, rising import costs show a worrying trend. Back in Hong Kong, as we grapple with a worse-than-expected economic slump, borrowers must learn to be extra prudent with their obligations.