Table of Contents
Hong Kong dollar interbank offered rate (HIBOR) rose across the board
– Short-term interest rates rose sharply
– Overnight HIBOR rose to 4.14% (+4.19 basis points), the highest since February 17
– 1-month HIBOR rose for 5 consecutive days to 4.07% (+11.66 basis points), the highest level since January 10, reflecting the continued rise in mortgage financing costs in the real estate market
– 1-period and 2-period HIBOR jumped by 23.9 and 19.7 basis points respectively, approaching the range of 4.15%-4.16%
– Medium- and long-term interest rates rise simultaneously
– 3-month HIBOR exceeded 4.03% (+6.8 basis points), 6-month HIBOR approached 3.99%, and 12-month HIBOR reached 4.05%, all reaching their peak since mid-January.
Hong Kong dollar exchange rate fluctuates in a narrow range as monetary base shrinks
- HKD slightly up against USD
Currently at 7.7747, with an intraday range of 35 points (7.7739-7.7774), indicating that the market has a solid confidence in the linked exchange rate
– Money supply decreases
– Total monetary base fell to HK$1,971.7 billion, the lowest since January 16
– Cash in circulation increased slightly to 13.319 billion, and the total balance soared to 50.236 billion (+5.5 billion), a new high since April 2023
- The balance of foreign exchange fund bills exceeded 1.3 trillion, setting a new record
– Liquidity adjustment measures
The HKMA injected HK$5.5 billion into the market through the discount window a week later, the largest single operation since the end of 2019, easing short-term funding pressure.
Global interest rate market linkage
– The dollar index fell slightly by 0.04% to 107.01
The Fed's policy rate (1-month SOFR) was reported at 4.31%, and the interest rate spread with the Hong Kong dollar narrowed to -43.6 basis points, the narrowest level in nearly a year, which may curb carry trades
– Shanghai Shibor differentiation
– Short-term interest rates fell: Overnight Shibor fell below 1.92% (-1.8 basis points)
– Rising medium- and long-term interest rates: 1-year Shibor rose to 1.81% (+1.6 basis points), reflecting the Chinese central bank’s precise control of market expectations
Key information suspension reminder
Bloomberg Terminal will stop publishing the Hong Kong Dollar Overnight Index Average (HONIA) from June 1, 2024. The market needs to turn to the HONIA alternative benchmark announced by the Hong Kong Monetary Authority.
Data Annotation
– Pip (basis point): 1 basis point = 0.01%, commonly used in pricing of financial products
- Discount Window Operations: A monetary policy tool used by the Hong Kong Monetary Authority to provide banks with short-term liquidity
Citizens face increasing pressure to pay their mortgages
– Rising mortgage costs: Most mortgage loans in Hong Kong are calculated based on “HIBOR + fixed interest rate”. An increase in HIBOR will directly push up the monthly repayment amount. If the 1-month HIBOR rises by 1%, the monthly repayment for every HK$1 million loan (30-year term) may increase by approximately HK$500-600.
– Cooling of the property market: The increased burden of mortgage payments may dampen demand for homes, and house prices and transaction volumes may come under pressure, particularly affecting middle- and low-income homebuyers.
Rising corporate financing costs
– Working capital pressure: Corporate short-term loans (such as commercial bills and overdrafts) are often linked to HIBOR. Rising interest rates increase financial costs, and cash flow for SMEs becomes even tighter.
– Declining investment intention: High financing costs may delay corporate expansion plans and affect economic growth momentum.
Increased volatility in financial markets
– Capital outflow from Hong Kong stocks: High borrowing costs reduce the willingness to invest in leveraged assets. Foreign capital may turn to US dollar assets with higher interest rates, leading to a decline in the liquidity of Hong Kong stocks.
– Carry trade reversal: If HIBOR is higher than USD LIBOR, carry trade (borrowing USD to buy HKD assets) will decrease and the HKD exchange rate will strengthen, but this may be accompanied by the risk of capital outflow.
The chain effect of the linked exchange rate system
– Narrowing of interest rate differential between Hong Kong and the United States: A rise in HIBOR usually reflects that Hong Kong follows the US interest rate hike (such as the Federal Reserve raising interest rates) to maintain the Hong Kong dollar in the range of 7.75-7.85. If HIBOR continues to be higher than the US dollar interest rate, it will help attract capital inflows to support the Hong Kong dollar.
– HKMA policy operations: To stabilize the exchange rate, the HKMA may adjust liquidity through Exchange Fund Bills, further pushing up HIBOR.
Deposit interest rates rise
– Increased savings yields: Banks may raise deposit rates to attract funds, which is good for conservative investors, but the increase is usually lower than the increase in loan rates. The widening of the deposit-loan spread may increase bank profits.
Potential macroeconomic risks
– Slowing consumption: Increased mortgage and business costs may reduce household and business consumption expenditure, affecting the retail and service industries.
– Slowing economic growth: If interest rates remain high for a long time, a decline in both investment and consumption may drag down Hong Kong’s GDP growth, especially against the backdrop of a weak global economy.
Suggestions
– Individuals: Floating rate mortgage holders need to reserve liquidity and may consider switching to a fixed rate mortgage to lock in costs.
– Enterprises: Optimize debt structure and reduce reliance on short-term high-interest loans.
– Investors: Focus on defensive assets in a high-interest environment (such as utility stocks, REITs) and avoid highly indebted industries.
Summarize
The rise in HIBOR reflects the tightening of Hong Kong's monetary environment, which will help stabilize the Hong Kong dollar in the short term but may suppress economic vitality in the long term. We need to observe the policy trends of the Federal Reserve and the economic recovery of mainland China in the future, both of which will have a profound impact on Hong Kong's interest rates and market trends.
Further reading:
- 2025 real estate market downturn still the main trend of the good news appears to be cautious observation
- One year after the removal of Hong Kong's property market regulation, the market value of residential properties has evaporated by US$61.7 billion, and the industry calls for new policies to save the market
