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Hong Kong's overnight interbank offered rate slid to 0.01289 percent, the lowest level since January 3, 2006, based on Bloomberg terminal records.

At the same time, the Hong Kong dollar weakened to 7.8471 per US dollar, its softest since late August 2023, and just about 30 pips away from the weak-side convertibility undertaking of 7.85.

Ryan Lam Chun-wang, head of the research department at Shanghai Commercial Bank, said the local currency could test the 7.85 level as early as the third week of June, prompting the the city's de-facto central bank to step in and defend the peg to the greenback.

The current pace of depreciation could be faster than in 2018 and 2022, when it took roughly 30 trading days for the Hong Kong dollar to weaken from 7.83 to 7.85, Lam said.

"However, many traders had previously engaged in carry trades to buy US dollars when the Hong Kong dollar was trading in the 7.75 to 7.76 range, and they are now likely to sell those dollars to take profits. The market may need some time to absorb these flows," Lam added.

Local banks borrowed HK$3.01 billion from the discount window on Tuesday, lifting the aggregate balance to HK$176.45 billion, according to the Hong Kong Monetary Authority.

Concurrently, the city’s mortgage-related one-month interbank offered rate dropped for a second straight session, falling 10.5 basis points to 0.76952 percent on Wednesday.

The drop brings down the real mortgage rate to around 2.07 percent.

STAFF REPORTER

Overnight Hibor slides, Hong Kong dollar falls just shy of 7.85 against greenback