Hong Kong Interbank Rate Near One-Year Low as Yuan Assets Sold

  • Yuan assets converted into local dollars since devaluation
  • HKMA buys greenback to keep its currency within trading range

Hong Kong dollar interbank borrowing costs have fallen to near a one-year low as China’s devaluation spurred an unwinding of yuan positions and boosted the cash supply.

The one-week interbank offered rate for the Hong Kong dollar was 0.094 percent on Tuesday, according to the Treasury Market Association fixing. It declined to 0.089 percent on Monday, the lowest since September 2014. The overnight rate was 0.049 percent after reaching a four-month low of 0.044 percent on Monday, a separate fixing showed.

There’s been a conversion into Hong Kong dollars after the People’s Bank of China devalued its currency last month, according to the Hong Kong Association of Banks. The city’s monetary authority has bought more than $6 billion to prevent the local dollar from strengthening beyond the upper end of its trading range since the Aug. 11 depreciation.

“The demand for the Hong Kong dollar is driven by the unwinding of yuan positions as the yuan is no longer a reliable one-way bet,” said Daniel Chan, an analyst at Brilliant & Bright Investment Consultancy Ltd. in Hong Kong. “The money isn’t going into stocks or the property markets. It’s quite a mystery.”

The city’s Hang Seng Index of shares has dropped 17 percent this quarter amid concern China’s economic slowdown is worsening and as the Federal Reserve moves closer to raising interest rates. The Centaline Property Leading Index, a gauge of Hong Kong’s property prices, has risen 2.3 percent during the period.

The Hong Kong dollar was steady at HK$7.7501 per dollar as of 10:43 a.m. local time, according to data compiled by Bloomberg. The city linked its currency to the greenback in 1983 when negotiations over the return of sovereignty from U.K. to China triggered a fund exodus. In 2005, policy makers committed to limiting the currency’s decline to HK$7.85 against the greenback and capping gains at HK$7.75.

The Hong Kong Monetary Authority is due to release the yuan deposit data for August by the end of this month. Savings in the Chinese currency in Hong Kong were at 994 billion yuan ($156 billion) as of July 31.

“With the weak confidence in the yuan and China’s economic outlook, the Hong Kong dollar will stay strong on the haven demand and the local liquidity will remain ample,” said Brilliant & Bright’s Chan.