With Hong Kong’s cash balance in its banking sector reaching its lowest since 2019-20, analysts are now predicting tough days for the region.
While the Chinese city’s interbank rates have gone up, the aggregate balance banks maintain with the Hong Kong Monetary Authority, stood at HK$103 billion (USD 13.12 billion). This level was last seen in 2020 June. The central bank has already soaked up the Hong Kong Dollars from the market to keep the currency from breaching the 7.75-7.85 band against the USD.
Talking about the impact of the above development, the impact is being felt on the interest rates front. Monthly Hong Kong Interbank Offered Rate (HIBOR) has jumped to 2.73%, a 240 basis points hike since March 2022.
The Hong Kong Monetary Authority is expected to intervene to maintain both the region’s dollar exchange rate band and US Dollar reserves. The central bank has already bought some USD 30 billion worth of local currency through multiple interventions since the United States Federal Reserve started hiking interest rates.
The Chinese city, as of now, has foreign exchange reserves of USD 419 billion, along with fiscal buffers in the guise of exchange bills. The region has witnessed financial crisis like this before as well. During the 2015-18 rate hike period, its banking system balances fell to a low of HKD 54 billion.
“The Linked Exchange Rate System has continued to work well while Hong Kong’s monetary and financial markets have continued to remain stable with the foreign exchange and money markets operating in a smooth and orderly manner,” the Hong Kong Monetary Authority said.