The Hong Kong dollar traded near the weak end of its trading band on Monday, with Citi forecasting Hong Kong’s de facto central bank will intervene soon, triggering a rebound in both the currency and interbank rates.
The local currency is edging closer to the weak-side peg level of 7.85 to the US dollar, hitting an intraday low of 7.8494 on Monday, just 6 pips shy of the Convertibility Undertaking threshold.
Citi estimates that the Hong Kong Monetary Authority – the city's de facto central bank – could drain HK$70 billion to HK$100 billion in liquidity to stabilize the currency. The bank expects the Hong Kong dollar to return to the mid-point of its 7.75-7.85 band in the second half, ending the year at around 7.80.
Hong Kong interbank offered rates continued to decline on Monday, with the mortgage-related rate falling to its lowest level in three years, according to the Hong Kong Association of Banks.
The one-month HIBOR slipped nearly 6 basis points from the previous trading day to 0.53952 percent, its lowest since 2021. The three-month rate dropped 7.6 basis points to 1.62393 percent, while other tenors saw changes of less than 10 basis points.
Citi expects HIBOR to remain low in the near term, but views the current “ultra-low” levels as temporary, forecasting the three-month HIBOR to rise toward 3 percent by the end of the year.
In response to regional currency strength since early May, the HKMA has injected liquidity into the market four times since May 2, totaling HK$129.4 billion, boosting the banking system’s aggregate balance to HK$174.1 billion.
STAFF REPORTER
