Hong Kong's Prime Rate Is Set to Increase This Year, BAML Says
- Local dollar is poised to touch weak end of trading band again
- City saw funding squeeze this month amid dividend payments
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Hong Kong faces a future of tightening liquidity as persistent depreciation pressures drive the city’s currency to the weak end of its peg against the greenback, according to Bank of America Merrill Lynch.
The Hong Kong Monetary Authority’s defense of the currency will further reduce the aggregate balance, putting upward pressure on interbank lending rates, or Hibor, BAML strategists led by Ronald Man wrote in a note. Once interbank liquidity drops to around pre-global financial crisis levels of HK$10 billion ($1.3 billion) it will prompt lenders to raise the mortgage-linked prime rate by 12.5 basis points.