Hong Kong Runs Down Liquidity Buffer With Little Impact on Rates, For Now
- City’s rates remain low relative to US despite thin liquidity
- Demand for local dollars is soft amid weak loan appetite
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Hong Kong is burning through a closely-watched component of its monetary base to ward off attacks on its dollar to little avail, with the lack of reaction in money markets likely to keep the pressure on the beleaguered currency.
The city’s aggregate balance — a gauge of interbank liquidity — has halved this year without driving local borrowing costs higher, the traditional mechanism for reversing weakness in the Hong Kong dollar. While the currency is pegged to the US dollar, the city’s one-month rates still trail their American counterparts by some 170 basis points, setting up a sweet spot for so-called carry traders.