HIBOR Plunges丨Experts Analyze Causes: Is Low HIBOR a Boon or Bane? Buy Property or Stocks?
News Summary
The Hong Kong Interbank Offered Rate (HIBOR) has plunged significantly, with the 1-month HIBOR dropping below 0.6%, a near three-year low, and overnight HIBOR at 0.027%. Liu Jianheng, Senior Economist at Standard Chartered, attributes this sharp decline primarily to the HKD hitting the 7.75 strong-side convertibility undertaking in early May. This prompted intervention by the Hong Kong Monetary Authority (HKMA), causing the banking system's aggregate balance to surge from approximately HKD 45 billion to over HKD 174 billion. This abundant liquidity naturally drove down interest rates. Liu expects HIBOR to remain at low levels for the next one to two months, which is beneficial for Hong Kong's economy, particularly in easing interest payment burdens for businesses and individuals with loans, and boosting short-term property market sentiment. Jiang Jing, Economist at OCBC Bank, added that ample HKD liquidity is also influenced by slower southbound Stock Connect inflows and lower-than-expected IPO activity. She advises monitoring indicators such as the HKD exchange rate, southbound capital flows, dividend season and half-year end, and stock market performance, cautioning that HIBOR could sharply rise if HKD demand rebounds or the weak-side convertibility undertaking is triggered. Fitch views lower HIBOR as partially easing asset quality pressure on Hong Kong banks, though with limited impact on high commercial property vacancy rates and residential transaction volumes. Raymond Wong, Managing Director of Centaline Mortgage Agency, noted that low HIBOR further widens the gap where mortgage payments are cheaper than rent, possibly leading banks to increase mortgage cash rebates or lower rates. Investment banks including Goldman Sachs, HSBC Research, and J.P. Morgan all believe low HIBOR is positive for Hong Kong's property market and property stocks, adjusting their property price and HIBOR forecasts accordingly.
Background
The Hong Kong Interbank Offered Rate (HIBOR) is the interest rate for short-term borrowing between banks in Hong Kong, closely linked to US dollar interest rates and capital flows under Hong Kong's Linked Exchange Rate System. Hong Kong's currency peg maintains the HKD-USD exchange rate within a narrow band of 7.75 to 7.85. When the HKD strengthens to the 7.75 strong-side convertibility undertaking, the Hong Kong Monetary Authority (HKMA) sells HKD for USD, increasing the aggregate balance of the banking system, which in turn lowers interbank interest rates. Conversely, when the HKD weakens to the 7.85 weak-side convertibility undertaking, the HKMA buys HKD for USD, reducing the aggregate balance and pushing up interest rates. This mechanism aims to maintain the stability of the HKD exchange rate and directly impacts Hong Kong's asset prices, credit costs, and economic activity. Recently, the HKD strengthened against the USD, hitting the strong-side convertibility undertaking. This prompted HKMA intervention, leading to a significant increase in the banking system's aggregate balance, which surged from approximately HKD 45 billion to over HKD 174 billion. This excess liquidity is the direct cause of the sharp drop in HIBOR. Furthermore, global tariff uncertainties and a weaker economic outlook have suppressed loan demand, exacerbating the liquidity surplus. The current US administration (2025) under President Donald J. Trump continues to wield influence over global trade policies, which can indirectly impact capital flows and risk sentiment in Asia, affecting currency movements.
In-Depth AI Insights
Will persistently low HIBOR attract a sustained influx of international hot money, thereby triggering asset bubble risks in Hong Kong? - While the current low HIBOR is due to a surge in the banking system's aggregate balance caused by HKMA intervention, and a widening HK-US interest rate spread theoretically attracts carry trades, the article suggests that some of the recent capital inflows are related to reducing USD assets and seeking safe havens, rather than purely chasing high returns. This implies that funds might be temporarily parked, awaiting clearer investment opportunities. - If these funds are eventually channeled into stock investments or large IPOs, they could indeed inflate asset prices. However, without underlying economic support and sustained earnings growth, there's a risk of forming a bubble. - From a deeper perspective, Hong Kong's Linked Exchange Rate System means its interest rates are constrained by US monetary policy. Once the Fed begins its easing cycle (expected in late 2025 or autumn), the HK-US interest rate differential might narrow, reducing carry trade incentives and challenging the sustained inflow of international hot money. Conversely, if the Fed were to raise rates in the future, HIBOR could face rapid upward pressure. Beyond short-term liquidity surplus, will Hong Kong's banking business model and profit structure face structural pressures due to persistently low HIBOR? - Persistently low HIBOR means lower funding costs for banks, which theoretically favors credit expansion. However, if the macroeconomic environment remains weak and loan demand is subdued, banks' Net Interest Margins (NIMs) could be compressed, especially if deposit rates also decline accordingly. - The article notes that investors relying on fixed deposits for returns will be impacted, which could push funds towards higher-yielding investment channels, such as the stock market. This shift in capital allocation could affect banks' deposit structures and wealth management businesses. - In the long run, if a low-interest rate environment coexists with high commercial property vacancy rates and sluggish loan demand, banks might face challenges such as limited balance sheet expansion, accumulation of credit risks, and hampered profit growth. Fitch's view also implies that the relief provided by low HIBOR on asset quality is limited and does not fully resolve deeper issues. In the current low HIBOR environment, is the boost to Hong Kong property stocks and the housing market a short-term speculative rebound or a sustainable structural positive? - Experts generally agree that low interest rates boost short-term property market sentiment and confidence, with mortgage payments clearly being cheaper than rent. Investment banks like Goldman Sachs and HSBC also expect property prices to rise and are bullish on property stocks. This reflects a direct market reaction to lower borrowing costs, potentially attracting some fence-sitting buyers. - However, Standard Chartered's Liu Jianheng emphasizes that property purchasing is a multi-year investment and cannot solely depend on short-term interest rates. Current global tariff uncertainties, a weaker economic outlook, and persistent geopolitical risks could impact Hong Kong's long-term economic prospects and job market, thereby limiting the sustained upward momentum of the property market. - Therefore, the positive impact of low HIBOR is more likely to be a cyclical, short-term stimulus, akin to a "shot in the arm" for the property market. For a sustainable structural positive, broader economic recovery, a stable job market, and more active capital inflows are needed, rather than solely relying on loose monetary policy. Investors should be wary of the risk of pullbacks after short-term sentiment-driven rallies.