Defending currency tipped to up loan cost

Hong Kong faces the likelihood of rising borrowing costs after the city's de facto central bank intervened to defend its currency peg for the first time since August.



Tuesday, March 12, 2019

Hong Kong faces the likelihood of rising borrowing costs after the city's de facto central bank intervened to defend its currency peg for the first time since August.

The Hong Kong Interbank Offered Rate overall rose, among which mortgage-related one-month Hibor surged to 1.41464 percent, the highest since January 10.

The Hong Kong Monetary Authority bought HK$1.51 billion of local dollars after the currency fell to the weak end of its trading band. The move will reduce the aggregate balance, a measure of interbank liquidity, to a decade low of HK$74.8 billion.

While the size of the buying was small relative to some of the HKMA's interventions last year, continued weakness in the currency may prompt the central bank to drain more liquidity. That would intensify pressure on home values in the world's most expensive property market, and weigh on the city's economy. Just 11 months ago, the aggregate balance stood at about HK$180 billion. US Federal Reserve chairman Jerome Powell said interest rates can remain on hold as the Fed waits to see how conditions abroad evolve, signaling that there's no clear time limit to its current pause.

"Inflation is muted and our policy rate we think is in an appropriate place," Powell said.

BLOOMBERG