Hong Kong interbank rates slump in downbeat signal

Interbank lending rates in Hong Kong slid to more than one-year lows on Wednesday, pointing to a lacklustre mood and low confidence as idle cash swamps one of Asia's financial capitals.

The overnight Hong Kong Interbank Offered Rate hit an almost five-month low at 2.93 per cent. Six-month HIBOR hit its lowest since May 2023 at 4.14 per cent, while one-year HIBOR made a two-year low at 4.15 per cent.

Hong Kong rates are tethered to the US by the Hong Kong dollar's peg to the US dollar, and have been falling for a few months in anticipation that US rates will be cut in September.

But they are also a reflection of Hong Kong dollar cash and of sentiment in the global financial gateway to China.

One driver may also be an unwinding of Hong Kong dollar versus yuan swap trades which are less attractive as China's currency gets back on firmer footing, said Natixis' chief Asia economist Alicia Garcia-Herrero.

"That's no longer as juicy because the RMB is quite expensive ... so why keep it?" she said. "There's no other investment opportunity in Hong Kong."

The benchmark Hang Seng equity index is sliding and touched an almost one-month low on Wednesday. The Hong Kong dollar, which is pegged to the greenback, was steady in the middle of its band at 7.7980 per dollar.