Hong Kong, February 27: The Hong Kong Monetary Authority (HKMA) said on Friday it had not interfered in the local money markets recently, but held out the possibility that it would intervene if its currency peg was in peril.The authority reportedly has been adding liquidity in a wide maturity spectrum over the last several days, a move dealers speculated was intended to depress interest rates and cheer financial markets. But James Lau, executive director (external), denied the HKMA had been acting in the money market to affect rates."Some reporters have asked whether we are taking action as the HKMA appears to have put some money out as deposits in the past couple of days. In fact, we are not," Lau told reporters.
Rather, he said, residents' tax payments deposited by the government in the exchange fund in January and February had been put back into the banking system, increasing liquidity.
"This does not mean we have been interfering in the market," he said.Hong Kong Interbank Lending Rates have fallenmore than 200 basis points in the last two weeks to levels not seen since an attack against the peg caused rates to soar last October.
On Friday, three-month HIBOR was 7.27 per cent. The lower interbank rates have given a lift to the local stock market this week as traders speculated Hong Kong banks might take advantage of their lower funding costs to cut the 10.25 per cent prime rate to spur new retail business.
But worries over Indonesia would likely discourage Hong Kong banks from making a move until after that country's presidential elections in March, most traders and analysts agreed.
The Hong Kong Association of Banks decided at its regular Friday meeting to keep deposit savings rates at 5.5 per cent and left the prime rate unchanged.Prime, which banks charge their best customers, was raised by 75 basis points to 10.25 per cent on January 9.Mervyn Davies, Standard Chartered Bank's group executive director for Hong Kong, China and north-east Asia and chairman of the association, said the groupbelieved a rate cut now was unjustified and would send a wrong signal to the financial markets."Although the interbank market position has improved, there are still a number of uncertainties in the market, particularly with Indonesian elections comingupshortly," he said.
Davies said Standard Chartered had no plan to cut prime now.
The HKMA's Lau attributed the rise in Hong Kong interest rates over the last few months to higher real US interest rates, a regional capital shortage arising from an outflow of funds from Asia and an "Asia risk premium" reflecting higher credit and exchange rate risks in the region.
Lau said many foreign observers had wrongly painted Hong Kong with the same brush as its more troubled neighbors and that the territory remained fundamentally strong.
Over time, if Asia's financial troubles continue to abate, Hong Kong dollar rates would converge with US dollar rates, as is normally the case because the currencies are pegged.
The spread between shorter-dated Hong Kong and USrates would likely narrow to 150-180 basis points from about 200 basis points now, Lau said, adding that there was no "right" premium.Reuters
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
