Hong Kong interbank rate crosses 1% for first time since 2008

[HONG KONG] The Hong Kong dollar's one-month borrowing cost rose above 1 per cent for the first time since the global financial crisis, increasing pressure on local lenders to raise a key measure that influences mortgage rates.

The one-month Hong Kong Interbank Offered Rate rose four basis points to 1.00304 per cent, the highest since December 2008, according to data posted on the Hong Kong Association of Banks website. The three-month rate added six basis points to 1.18927 per cent, while the overnight cost declined.

A combination of year-end demand and an imminent Federal Reserve interest-rate hike in December are underpinning interbank rates in Hong Kong. Fed tightening will prompt similar action in Hong Kong, which imports US monetary policy because of a currency peg to the greenback.

If Hibor rates remain high, there will be a greater chance of an increase in the city's prime rate, Nomura Holdings analysts led by Sophie Jiang wrote in a Nov 27 note.

"The market is following the US because it expects a Fed rate hike to happen, and it's near year-end and month-end, so there are some seasonal factors," said Terry Siu, treasurer at Wing Lung Bank in Hong Kong. "This sends the message the prime rate may need to go up."

The prime rate, which is individually set by banks, forms the basis of caps on floating mortgage rates in Hong Kong. When the prime rate is raised, home owners will start to pay higher interest on loans.

Recent increases in Hibor have helped it catch up with its American peer, supporting the local currency. The Hong Kong dollar was trading little changed at HK$7.8054 against the greenback on Wednesday.

BLOOMBERG