Hong Kong Raises Benchmark Rate Following Fed Tightening

Krystal Chia, Bloomberg News

Pedestrians crosses Queen's Road Central in Hong Kong, China, on Tuesday, Feb. 15, 2022. Hong Kong’s leader said the city had no plans for a citywide lockdown to help bring cases back to zero, even as she acknowledged that a growing omicron outbreak has exceeded its capacity to respond. Photographer: Paul Yeung/Bloomberg , Bloomberg

(Bloomberg) -- Hong Kong’s interbank borrowing cost may stay high and banks may adjust their lending rates, the city’s monetary authority said after a week which saw the overnight funding rate swing wildly.

“The Hong Kong dollar interbank rates might remain at elevated levels for some time,” the Hong Kong Monetary Authority said in a statement. The HKMA earlier raised its base rate by 25 basis points Thursday, after the lead of the Federal Reserve.

So far there is little risk of banks following suit. HSBC Holdings Plc kept its best lending rate unchanged at 5.625%, according to an emailed statement. HSBC and other banks held those rates the last time the HKMA hiked in February, after raising them a few times last year.

The best lending rates in Hong Kong are used as a base for banks to quote interest rates on mortgage loans, so they have an ability to encourage more lending and borrowing no matter what happens with the HKMA base rate.

Volatility in the interbank rate, known as Hibor, draw attention earlier in the wake of UBS Group AG’s takeover of Credit Suisse Group AG. On Tuesday, the overnight Hibor soared the most since Bloomberg started compiling the data in 2006, jumping 253 basis points, while the one-month gauge had its biggest gain since 2008.

The HKMA earlier attributed the surge in interbank funding rates to demand for the local currency amid market volatility and quarter-end needs. The cash squeeze has since subsided, with the two rates falling on both days since. The one-month Hibor is 34% lower than its recent December high.

Hong Kong Overnight Borrowing Costs Drop as Cash Squeeze Eases

“The public should be prepared for the movements of banks’ lending rates,” the HKMA said in Thursday’s statement. “The financial and monetary markets of Hong Kong continue to operate in a smooth and orderly manner, despite the volatile overseas markets.”

--With assistance from Michael Heath and Nasreen Seria.