Hong Kong Bank Borrowing Rise May Signal Tightening Liquidity

Overnight borrowing by Hong Kong banks jumped to the highest in almost five months, a sign that a series of interventions to bolster the local currency may be having a desired effect on the money market.

The Hong Kong Monetary Authority — the city’s de-facto central bank — loaned out HK$4.67 billion ($595 million) through its so-called discount window on Tuesday, the most since February, according to data compiled by Bloomberg. While the overnight interbank offered rate has remained close to zero, the one-month equivalent has doubled from a mid-June low.

The spike in overnight borrowing may reflect banks turning to central bank liquidity as the interventions drain cash from the system, a move aimed at easing pressure on the currency. Low funding costs have allowed traders borrow the Hong Kong dollar cheaply and use it to buy the higher-yielding greenback.

The HKMA the local dollar for a third time in a week on July to prevent the currency from falling below the weak end of its permitted trading band.