Short-term interbank rates in Hong Kong hit their highest in more than a decade on Monday as wagers on further U.S. rate hikes and capital flows out of Chinese markets have tightened cash conditions in the Asian financial hub.
The overnight Hong Kong interbank offered rate (HIBOR) spiked nearly 67 basis points to just over 5.75%, the highest level on LSEG data stretching back to 2006. One-week and two-week HIBOR hit 16-year highs.
One-month and three-month HIBOR also rose, hitting highest levels since early August.
Hong Kong rates are tethered to those in the U.S. because of the Hong Kong dollar's peg to the U.S. dollar, and have been rising as traders reckon U.S. rate hikes might not be finished.
The spikes in interbank rates also come alongside a decline in the aggregate balance - a gauge of cash balances in the Hong Kong banking system - which at just below HK$45 billion is at its lowest level since 2008.
Investors have been pulling money out of China - via Hong Kong - for months as the Chinese post-pandemic recovery has disappointed expectations.
"Outflows continue to leave Hong Kong, and the Fed keeps on hiking. All of this explains the very high HIBOR," said Alicia Garcia Herrero, chief economist Asia-Pacific at Natixis.
The city's currency is pegged to the greenback in a tight range of 7.75-7.85 per dollar and it rose slightly on Monday to a one-week high of 7.8152. (Reporting by Tom Westbrook; Editing by Kim Coghill)