HONG KONG, June 17 — The Hong Kong dollar edged closer to the weak end of its trading band on Monday, prompting expectations that the Hong Kong Monetary Authority (HKMA) will step in to support the currency. Citi forecasts that such an intervention could trigger a rebound in both the local currency and interbank lending rates.
The Hong Kong dollar dipped to an intraday low of 7.8494 against the U.S. dollar — just six pips away from the 7.85 threshold, where the HKMA is required to act under its currency peg mechanism.
According to Citi, the HKMA may need to withdraw between HK$70 billion and HK$100 billion from the banking system to stabilize the exchange rate. The bank expects the Hong Kong dollar to strengthen in the second half of the year, likely moving toward the midpoint of its 7.75 to 7.85 trading range and ending the year around 7.80.
Meanwhile, Hong Kong’s interbank offered rates (HIBOR) continued to fall. The one-month HIBOR, closely tied to mortgage rates, dropped nearly 6 basis points to 0.53952%, its lowest level in three years. The three-month HIBOR declined 7.6 basis points to 1.62393%, with other tenors showing smaller changes.
Citi predicts that HIBOR will stay low in the near term but believes the current “ultra-low” rates are temporary. It expects the three-month HIBOR to rise to around 3% by the end of 2024.
Since early May, the HKMA has injected liquidity into the financial system four times in response to stronger regional currencies. These operations have totaled HK$129.4 billion, raising the banking sector’s aggregate balance to HK$174.1 billion.
