By Summer Zhen and Winni Zhou
HONG KONG/SHANGHAI (Reuters) -Hong Kong dollar rates fell across the board on Friday, heading for their biggest weekly drop in decades, with money pouring into the city, away from U.S. dollar assets and China’s struggling economy.
The surge in liquidity also reflects an infusion of cash from the city’s de-facto central bank and a busy pipeline of initial public offerings (IPOs) in the local market.
The overnight Hong Kong Interbank Offered Rate (HIBOR), a key barometer of liquidity, dropped to 0.09786%, the lowest level in nearly three years.
It also registered its biggest weekly fall, 4.2 percentage points, since at least 2006.
“Investors are converting dollar assets into local currencies, including Hong Kong dollar, pushing down interest rates,” said Andrew Xia, economist at Shangshan Capital Group.
Chinese money is also gushing into Hong Kong as “the mainland economy is in bad shape, and some domestic investors worry about the trade war’s impact.”
He added that money was being lured by a slew of IPOs in the city as well.
In addition, the Hong Kong Monetary Authority intervened to keep its currency’s value within the tight trading range of its peg to the dollar, amid a wider loss of confidence in the greenback.
HKMA’s intervention increases the amount of Hong Kong dollars in the city’s banking system, which puts downward pressure on interbank rates and should drag the Hong Kong dollar lower.
Kimmy Tong, global market & FX strategist at Everbright Securities International, said there have been strong inflows into Hong Kong stocks, both from mainland investors, and global funds in expectation of a potential U.S. rate cut in the second half.
Whether rates fall further will depend on the U.S.-China trade talks over the weekend, Tong said. “If the talks are not going very smoothly, maybe the money will keep going into the China and Hong Kong market.”
(Writing by Samuel Shen; Editing by Muralikumar Anantharaman and Sonali Paul)
