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Hibor’s advance on Libor reduces Hong Kong carry trade appeal

“Hibor has caught up to Libor and made the carry trade less attractive,” said Cliff Tan, East Asian head of global markets research at MUFG. “It’s really important for them [HKMA] to demonstrate to the world that the currency system is self-reinforcing, but there was an uncomfortable period this year when Hibor and Libor deviated.”

With the US widely expected to increase its main interest rate on Wednesday, Hong Kong’s base lending rate is set to follow suit, under the linked exchange rate system.

As this underpins commercial banks’ cost of borrowing from the HKMA, pressure is mounting on lenders to raise their prime rates, which determine the interest they charge customers on loans.