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Hong Kong banking liquidity at tightest in two years, rates jump

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HONG KONG : Hong Kong's efforts to defend its pegged currency have pushed cash balances in the banking system to their lowest in nearly three years and driven interbank rates up sharply, with analysts expecting the property sector to feel the first pains.The aggregate balance banks maintain with the Hong

HONG KONG : Hong Kong's efforts to defend its pegged currency have pushed cash balances in the banking system to their lowest in nearly three years and driven interbank rates up sharply, with analysts expecting the property sector to feel the first pains.

While analysts and markets are watching that balance approach the HKD$100 bln mark with a view on potential market stresses, the immediate impact seems to be on interest rates.As the interbank cash balance shrinks, incremental outflows from Hong Kong would cause bigger swings in rates, said Raymond Yeung, chief greater China economist at ANZ.

Under the city's linked exchange rate system, the HKMA is committed to intervene to maintain the HK dollar exchange rate band by also maintaining sufficient U.S. dollar reserves.

 

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