*
3-month HIBOR jumps 18.9 bps, sharpest leap since May 2020
*
Traders anticipate further liquidity drain
(Adds HKMA statement)
HONG KONG, May 3 (Reuters) - Hong Kong interbank rates
jumped sharply on Wednesday as months of authorities sucking
cash from the financial system took effect, and as traders
braced for a U.S. interest rate hike.
The three-month Hong Kong Interbank Offered Rate (HIBOR) jumped 18.9 basis points (bps) to 3.89929%, its
sharpest one-day leap in nearly two years. One-month HIBOR rose more than 14 bps to 3.55333%, its highest since
January.
Hong Kong and U.S. rates markets are tethered by the Hong
Kong dollar's peg to the U.S. dollar.
Since February the Hong Kong dollar has been at the weak
end of its tight trading band, obliging the Hong Kong Monetary
Authority (HKMA) to buy Hong Kong dollars, which makes them
scarcer and eventually applies upward pressure on interbank
rates .
Hong Kong's aggregate balance -- a gauge of cash levels in the banking system -- has declined precipitously as the HKMA has intervened to defend the peg, hitting a 14-1/2 year low of HK$49 billion ($6.2 billion).
Hong Kong rates have been creeping up for about two
weeks, as the reduction of cash in the financial system starts
flowing through to banks. Analysts said Wednesday's sudden move
was in anticipation of a U.S. hike driving another round of HKMA
Hong Kong dollar buying.
"The market is overall getting slightly more cautious about interbank cash balance falling further," said Ju Wang, head of Greater China FX and rates strategy at BNP Paribas.
Jumps in HIBOR also reflect market participants positioning for Hong Kong rates to close a wide gap on U.S. rates, she said.
The difference, or spread, between HIBOR rates and U.S. dollar equivalents hit its widest in almost two decades in April as sluggish loan demand offset the HKMA's interventions and kept Hong Kong flush with cash.
The U.S. Federal Reserve is
expected to raise the benchmark Fed funds rate by 25 bps on Wednesday and perhaps hint that its hiking cycle is all but over. The Hong Kong dollar was pinned at the weak end of its band at 7.8499 to the greenback on Wednesday.
The HKMA issued a
statement
late in the afternoon, saying it "continues to have strong
confidence in the linked exchange rate system", and adding banks
have been able to properly manage their liquidity and ensure the
orderly movements of funds.
($1 = 7.8499 Hong Kong dollars)
(Reporting by Georgina Lee in Hong Kong. Writing by Tom
Westbrook; Editing by Andrew Heavens and Kim Coghill)
