Hong Kong’s monetary authority stepped up efforts to support the local currency amid US dollar volatility and persistently low local funding costs, purchasing HK$20.02 billion ($2.5 billion) during New York trading hours earlier on Wednesday — its second such move within a week.
The Hong Kong Monetary Authority (HKMA)’s intervention came after the local currency reached the weak-side convertibility undertaking of HK$7.85 per US dollar, in an effort to keep the Hong Kong dollar within its allowed trading band.
The purchase was more than double the previous week’s buy-in by the authority, and is expected to lead the banking system's aggregate balance, a crucial indicator of cash in Hong Kong’s banking system, to HK$144.18 billion on Thursday.
READ MORE: HKMA intervenes as currency hits weak end of trading range
Last Thursday, the HKMA sold US dollars and purchased HK$9.42 billion — its first such intervention since May 2023 — to maintain the peg to the US dollar.
Liquidity in the local currency market has been abundant following the HKMA’s selling of the Hong Kong dollar multiple times in May in response to the currency’s quick rise amid an influx of capital from international investors, as well as a weakening of the US dollar.
These actions have widened the interest rate differential between the local currency and the greenback, prompting investors to engage in carry trades — a strategy in which Hong Kong dollars are borrowed to trade US dollar assets to earn the rate difference — which caused the outflow of the local currency and led the Hong Kong dollar exchange rate to fall.
Singapore-based United Overseas Bank predicted in early June that the Hong Kong dollar would remain above HK$7.80 to the US dollar from the third quarter of 2025 to the second quarter of 2026.
If the low level of exchange rate and the carry trading activities continue, the HKMA may continue to reduce liquidity, pushing Hong Kong’s interbank rates, known as HIBOR, to rise and ending an “ultra-low rate honeymoon” for house buyers, according to Eric Tso Tak-ming, chief vice-president of mReferral Mortgage Brokerage Services.
The overnight HIBOR rate dropped to 0.02 on Wednesday, after briefly recovering to 0.037 following the HKMA’s intervention last Thursday; the one-month HIBOR rate, which is linked to the mortgage rate, had fallen to 0.729.
“While the current low HIBOR may not be sustainable in the long run, it is expected to remain subdued for at least the next few months,” Hannah Jeong, executive director and head of Valuation and Advisory Services at CBRE Hong Kong, told China Daily.
READ MORE: Hong Kong steps up defense of FX peg as fixed range tested again
“This environment of low borrowing costs is generally supportive of the property market, providing some breathing room for existing homeowners and potentially encouraging long-waiting buyers to enter the market,” Jeong added.
Tso predicted that the property market would be “cautiously optimistic” in the second half of the year. A spate of strong economic performances, including an increase in residents’ income and stable inflation figures, coupled with the recurrent softening of property prices, are believed to have boosted people's sentiment and confidence in entering the market, he added.
Hong Kong’s approved mortgage loans in May increased by 5.3 percent from a month earlier to HK$26.6 billion, the highest level since May last year.
Contact the writer at gabylin@chinadailyhk.com
