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The Hong Kong Monetary Authority yesterday intervened in the currency market for a second straight day, buying from the market HK$14.87 billion - the largest chunk since last May - to safeguard the local currency's peg to the US dollar.
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This came a day after the authority purchased HK$4.2 billion on Tuesday, leaving the aggregate balance measuring interbank liquidity to drop to around HK$77 billion.
However, the shrinking liquidity failed to push up Hong Kong's interbank offered rates by much.
The one-month Hibor inched up by 2.1 basis points to 2.14 percent yesterday, that of overnight and 12-month edging down by 2.6 and 0.5 basis points respectively.
The gap between Hibor and its US counterparts is the biggest in recent history and offers hedge funds the opportunity to gain via carry trade by borrowing the SAR currency cheaply to buy the US dollars for higher yields.
Intervention from the authority came as several Federal Reserve officials warned on Tuesday that interest rates may need to go higher than anticipated to keep the lid on inflation in light of January's hotter-than-expected inflation data.
"We are of the view that FX intervention has yet to fully run its course, as US-HK rate spreads remain very wide," said Cindy Keung, an economist at OCBC Wing Hang Bank.
Keung said intervention will "persist for a while before inflows into Hong Kong dollar assets and loan demand returns under the China reopening trade."
Separately, the HKMA said total credit card receivables increased by 12.1 percent in the fourth quarter to HK$145 billion, mainly driven by festive spending and salaries tax payment.
