Latest news with #Hibor
Straits Times
2 days ago
- Business
- Straits Times
Hong Kong intervenes to defend US dollar peg as local currency drops
HONG KONG – Hong Kong's de-facto central bank spent more than a billion dollars propping up the city's exchange rate, as it sought to defend a currency peg that has been strained by volatility in the greenback. The Hong Kong Monetary Authority (HKMA) took out HK$9.42 billion (S$1.5 billion) of the city's currency from circulation after the exchange rate touched the weak end of its US dollar peg. In earlier weeks, the monetary authority had injected liquidity into the financial system to rein in gains in the local exchange rate as the US currency declined. The currency rose as high as 7.8469 per US dollar in the morning session in Asia on June 26, before paring the gain to trade around 7.8493. In addition to pushing the currency back into its permitted trading range of 7.75-7.85 per greenback, the HKMA's latest move will also make bearish bets more costly. It does this by draining liquidity from the financial system and driving up borrowing costs. The one-month Hibor rate rose to 0.97 per cent after the HKMA's intervention, the highest level since May 19. The gap between one-month US and Hong Kong rates stands at well over 300 basis points. When Hong Kong dollar's funding costs are significantly lower than those in the greenback, traders tend to borrow the city's currency and sell it against its higher-yielding US counterpart to earn the interest-rate difference. That's made it the world's most rewarding carry trade over the past month by one measure. The intervention follows a rollercoaster ride for the Hong Kong dollar that has seen it swing between both ends of its trading range as authorities sought to protect the currency peg. The volatility has intensified debate about the sustainability of the fixed exchange rate, even though there are no signs that a change is imminent. The HKMA is signalling that funding for carry trades is going to be more expensive and USD/HKD will not rise much further, said Rodrigo Catril, a currency strategist at National Australia Bank in Sydney. 'For markets, the big question is: do you believe the peg will be protected? For now, authorities are showing that they are very much willing to defend it.' When asked about the prospect of further intervention, the HKMA referred to its website which says the monetary authority is committed to buying local dollars if the currency hits the weak end of the band. The HKMA's predicament stands in contrast to the dilemma faced by most other Asian central banks, which are trying to cool their currencies' gains as the dollar declines. It was just in early May when the Hong Kong dollar advanced to 7.75 per dollar as the greenback weakened, prompting the HKMA to step in to check its gains. Authorities pumped in US$16.7 billion (S$21.4 billion) worth of local dollars into the financial system, driving it to the weaker end of the band. The HKMA's move to intervene at both ends of the trading range in the same year is 'a first since the city's de facto central bank reformed the peg system into a band in May 2005,' Stephen Chiu, chief Asia FX and rates strategist at Bloomberg Intelligence, wrote in a note. 'If the current, more frequent touching of the band becomes the new norm, reduced stability in the Hibor might not be constructive for businesses operating in the city – particularly the property sector,' Mr Chiu wrote. 'Subsequently, it may be natural for authorities to study whether the peg parameters should be modified – for example, the band width and even the peg target.' Hong Kong will maintain its currency's peg to the US dollar as it is a key success factor, Chief Executive John Lee Ka-chiu told local media in early June, after a bout of volatility fuelled speculation about alternatives to a dollar peg. The latest intervention will reduce the city's aggregate balance, a closely-watched component of its monetary base and gauge of interbank liquidity to HK$164 billion, the HKMA said. Hong Kong also has $431 billion in foreign currency reserves, according to the latest data for May. BLOOMBERG Join ST's Telegram channel and get the latest breaking news delivered to you.
RTHK
5 days ago
- Business
- RTHK
HK stocks end up on strong Stock Connect inflows
HK stocks end up on strong Stock Connect inflows The Hang Seng Index ended trading on the first day of the week up 158.65 points, or 0.67 percent, at 23,689.13. File photo: RTHK Hong Kong shares ended higher on Monday, lifted by the strongest southbound inflows via the Stock Connect in three weeks, even as investors remained cautious over the outlook for tighter cash conditions in the market. The benchmark Hang Seng Index ended trading on the first day of the week up 158.65 points, or 0.67 percent, at 23,689.13. The Hang Seng China Enterprises Index rose 0.82 percent to end at 8,597.36 while the Hang Seng Tech Index rose 1.05 percent to end at 5,187.01. Onshore investors bought a net 7.9 billion yuan of Hong Kong shares via the Stock Connect on Monday, the highest since May 30. Mainland investors helped drive a rally in Hong Kong shares this year, but their participation has tapered off in the past two months. Hua Hong Semiconductor and SMIC jumped around 4.5 percent each, after media reported that the US government is weighing additional restrictions on China, including revoking waivers that allow global chip makers to access American technology in China. Meanwhile, the Hong Kong dollar slipped to 7.85 per US dollar on Monday, hitting the weaker end of its trading band for the second time since May 2023. The move may prompt the Hong Kong Monetary Authority to drain liquidity from the banking system to support the currency. Hong Kong market liquidity is unlikely to ease further and may even tighten as Hong Kong interbank offered rates (Hibor) have likely bottomed out and southbound inflows have slowed, said Kevin Liu, strategist at China International Capital Corporation. The overnight Hibor, a key barometer of liquidity, hovered near a record low at 0.01777 percent. "Short-term liquidity tightening, uncertainties surrounding tariff negotiations, weakening economic data and delays in policy support could all contribute to increased market volatility," Liu said. Mainland Chinese stocks closed higher on Monday, with the benchmark Shanghai Composite Index up 0.65 percent to 3,381.58. The Shenzhen Component Index closed 0.43 percent higher at 10,048.39. China's Coal Index rose 1.6 percent. Maritime shipping and port shares broadly rose, with Nangjing Port up to 10 percent. (Reuters/Xinhua)
Yahoo
09-06-2025
- Business
- Yahoo
Hong Kong has all but abandoned the dollar peg
Interest rates in Hong Kong have been eerily low, raising the question of whether the city's dollar peg is now in name only. Interest rates in Hong Kong have been eerily low, raising the question of whether the city's dollar peg is now in name only. Hong Kong surrendered its monetary autonomy decades ago, thanks to a unique mechanism that restricts its currency fluctuation to a narrow band of 7.75 and 7.85 per dollar. That means the city's borrowing costs move in lockstep with those in the US, which are dictated by the Federal Reserve's rate policies. Lately, though, currency traders have been staring at an anomaly. The one-month Hong Kong interbank offered rate, or Hibor, has collapsed since early May. The gap with the US secured overnight financing rate, or SOFR, is at an unprecedented level of more than three percentage points. Investors are now asking what caused this divergence and whether Hibor will stay lower for longer. The first part of the story is well understood. Last month, the Hong Kong Monetary Authority purchased the greenback amid a global dollar rout to prevent its currency from strengthening beyond 7.75. HKMA's balance sheet ballooned while a flood of new local money pushed down Hibor. But such glaring bifurcation from SOFR should only be temporary. When local funding costs are significantly lower, traders can borrow Hong Kong dollars and sell them against the higher-yielding US counterpart. This, in turn, will lift the city's currency and rates over time. The fact that this rate gap has not narrowed shows there's little appetite to earn dollar carry trades. Wall Street banks are reinforcing their calls that the dollar will weaken further. In addition, there's talk of an Asian Financial Crisis in reverse, marked by a violent rally in local currencies such as the one Taiwan witnessed in early May. What if HKMA all of a sudden decides to move the currency peg to a stronger range? Gains from the carry trade would be instantly wiped out. Investors are right not to lose sight of the big picture. After all, Taiwan dollar's 8% melt-up last month proved painful for under-hedged insurers and exporters. On an economic level, this trend can be a huge boon for a financial hub that is trying to regain its footing. In recent years, businesses have complained about the dollar peg, saying that Fed rate hikes unnecessarily tightened the city's financial conditions and hamstrung its economic recovery. Hong Kong's anaemic residential real estate, for one, could see a rebound if the current trend continues. The prevailing new mortgage rate would be only 2.1%, versus 3.5% in early May. For a 30-year loan with a 70% loan-to-value ratio, monthly payments could be cut by about 15%, according to Bloomberg Intelligence. The value of underwater mortgages would fall as well. A persistent rate gap reveals two things: First, the 'Sell America' trade is real. Second, the city has practically moved on from a waning reserve currency, tearing itself from an interest rate trajectory mapped out by central bankers thousands of miles away. This peg is too archaic. See Also: Click here to stay updated with the Latest Business & Investment News in Singapore China's global income tax crackdown expands beyond ultra rich Hong Kong's 2025 growth outlook cut by AMRO on trade uncertainty Chinese listing spree sparks revival hopes in Hong Kong stocks Read more stories about where the money flows, and analysis of the biggest market stories from Singapore and around the World Get in-depth insights from our expert contributors, and dive into financial and economic trends Follow the market issue situation with our daily updates Or want more Lifestyle and Passion stories? Click hereError in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
The Star
06-06-2025
- Business
- The Star
Hong Kong has all but abandoned the dollar peg
Borrowing costs in Hong Kong have collapsed despite the dollar peg. — Bloomberg INTEREST rates in Hong Kong have been eerily low, raising the question of whether the city's dollar peg is now in name only. Hong Kong surrendered its monetary autonomy decades ago, thanks to a unique mechanism that restricts its currency fluctuation to a narrow band of 7.75 and 7.85 per dollar. That means the city's borrowing costs move in lockstep with those in the United States, which are dictated by the Federal Reserve's (Fed) rate policies. Currency traders have been staring at an anomaly. The one-month Hong Kong interbank offered rate or Hibor, has collapsed since early May. The gap with the US secured overnight financing rate, or SOFR, is at an unprecedented level of more than three percentage points. Investors are now asking what caused this divergence and whether Hibor will stay lower for longer. Borrowing costs in Hong Kong have collapsed despite the dollar peg. The first part of the story is well understood. Last month, the Hong Kong Monetary Authority (HKMA) purchased the greenback amid a global dollar rout to prevent its currency from strengthening beyond 7.75. HKMA's balance sheet ballooned while a flood of new local money pushed down Hibor. But such glaring bifurcation from SOFR should only be temporary. When local funding costs are significantly lower, traders can borrow Hong Kong dollars and sell them against the higher-yielding US counterpart. This, in turn, will lift the city's currency and rates over time. The fact that this rate gap has not narrowed shows there's little appetite to earn dollar carry trades. Wall Street banks are reinforcing their calls that the dollar will weaken further. In addition, there's talk of an Asian Financial Crisis in reverse, marked by a violent rally in local currencies such as the one Taiwan witnessed in early May. What if HKMA all of a sudden decides to move the currency peg to a stronger range? Gains from the carry trade would be instantly wiped out. Investors are right not to lose sight of the big picture. After all, Taiwan dollar's 8% melt-up last month proved painful for under-hedged insurers and exporters. On an economic level, this trend can be a huge boon for a financial hub that is trying to regain its footing. In recent years, businesses have complained about the dollar peg, saying that Fed rate hikes unnecessarily tightened the city's financial conditions and hamstrung its economic recovery. Hong Kong's anaemic residential real estate, for one, could see a rebound if the current trend continues. The prevailing new mortgage rate would be only 2.1%, versus 3.5% in early May. For a 30-year loan with a 70% loan-to-value ratio, monthly payments could be cut by about 15%, according to Bloomberg Intelligence. The value of underwater mortgages would fall as well. — Bloomberg Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. The views expressed here are the writer's own.
South China Morning Post
04-06-2025
- Business
- South China Morning Post
Hong Kong housing market bound for slow recovery amid cheaper mortgages: analyst
Hong Kong's housing market is poised for a gradual recovery starting in the second half of this year, as population inflows, falling interest rates and a rebound in rental demand restore confidence, according to Bocom International. The investment bank said home prices could rise by 3 per cent over the next six months, followed by 5 per cent increases in both 2026 and 2027, as sentiment improved amid declining borrowing costs while returning residents and arriving professionals boosted demand. The upbeat forecast came after signs of a cooling market amid geopolitical tensions and stock-market volatility. Property transactions in Hong Kong dropped to a three-month low in May, with the number of deals falling 11 per cent to 6,442 from a month earlier, according to data from the Land Registry. 'Key turning points are emerging despite lingering macro uncertainties,' Bocom analyst Philip Tse said in a report on Tuesday. He referred to a recent sharp drop in the one-month Hong Kong interbank offered rate (Hibor), a key reference for mortgage pricing, which fell to nearly a three-year low of 0.6 per cent on May 27 from 3.95 per cent on April 30 after interventions in the currency market by the Hong Kong Monetary Authority 'We believe it will help restore confidence in the property market, boosting optimism among both homebuyers and investors, and supporting the sector's stabilisation and recovery,' he said. Lower mortgage rates would ease repayment burdens on homebuyers, effectively reducing the cost of home ownership, while offering 'a favourable opportunity for first-time buyers to enter the property market', the bank said. A recent correction in home prices, steady rental yields and potential capital gains could also help revive interest from long-term investors, it added.
