Hong Kong’s overnight interest rate slid by the most since May as a pullback in local stocks dampened demand for short-term funding.

The decline in the overnight Hong Kong Interbank Offered Rate came after the gauge had jumped on Monday to the highest level this year due to thin liquidity on a US public holiday and an equity rally. Overnight Hibor fell 176 basis points Tuesday to 2.89 percent, data compiled by Bloomberg show.

“It’s a reflection of looser overnight liquidity as the US holiday passed,” said Stephen Chiu, chief Asia foreign-exchange and rates strategist at Bloomberg Intelligence in Hong Kong. Hibor rates could still climb to some extent in the short run until the Hong Kong dollar hits 7.75 per US dollar and triggers the Hong Kong Monetary Authority to intervene by injecting liquidity into the market, he said.

ALSO READ: NPP: An 'IPO Connect' should be established to attract global funds

Overnight Hibor had climbed 65 basis points Monday to 4.65 percent, the highest level since December.

The Hang Seng Index slipped 0.8 percent Tuesday after jumping 2.2 percent the previous day as local equities rallied following upbeat AI earnings from Alibaba Group Holding Ltd. The Hong Kong dollar weakened 0.1 percent Tuesday to a rate of 7.8025 to the US currency.

The HKMA has been buying local dollars to defend the Hong Kong dollar’s peg to the greenback, shrinking the so-called aggregate balance — a measure of how much cash banks hold with the authority.