Hong Kong Interbank Rates Drop to Near 3-Year Low After FX Intervention

The Hong Kong Monetary Authority’s (HKMA) recent foreign exchange interventions have sent interbank rates tumbling, with the one-month Hong Kong Interbank Offered Rate (HIBOR) hitting 3.66% in early May 2025—the lowest in two weeks. While this marks a significant decline, it falls short of the three-year low of 2.0945% recorded in late 2023. This article explores the drivers behind the rate drop, its implications for borrowers and investors, and the outlook for Hong Kong’s financial landscape.

HKMA’s Interventions: A Liquidity Floodgate

The HKMA’s May 2025 interventions were historic. To defend the Hong Kong dollar (HKD) within its 7.75–7.85 per USD trading band, the authority sold a record HK$129.4 billion (US$16.2 billion) of HKD, injecting liquidity into the system. This pushed the Aggregate Balance—a key liquidity gauge—to unprecedented levels, easing short-term borrowing costs.

The one-month HIBOR, a benchmark for mortgages and corporate loans, dropped to 3.66% on May 6, down from 4.07% in late February 啐. Meanwhile, shorter-term rates like the overnight rate plummeted to 2.63%, highlighting the impact of the HKMA’s actions.

What’s Driving the Rate Decline?

1. Equity-Related Demand: The buildup to major initial public offerings (IPOs), such as Contemporary Amperex Technology Co. (CATL)’s anticipated HK$5 billion listing, created strong demand for USD, pushing the HKD to its strong-side convertibility limit (HK$7.75/USD). The HKMA’s interventions neutralized this pressure.
2. Regional Currency Appreciation: Regional currencies like the Chinese yuan and Singapore dollar strengthened against the USD, indirectly boosting demand for HKD.
3. Global Monetary Policy: The Federal Reserve’s decision to hold the federal funds rate at 4.25–4.5% in May 2025 aligned with the HKMA’s base rate of 4.75%, reducing the urgency for further tightening.

Winners and Losers in a Low-Rate Environment

• Borrowers: Lower HIBOR rates are a lifeline for households and businesses. For instance, a HK$5 million mortgage at HIBOR + 1.3% saw monthly repayments drop to HK$22,146 in late 2023 when HIBOR hit 2.09%—a stark contrast to the current 3.66% rate, which still offers relief compared to earlier 2025 highs.
• Investors: The rate decline could spur property market activity, though the HKMA has repeatedly warned of risks in an over-leveraged market. Meanwhile, bondholders and savings-oriented investors face diminished returns.

Is This a 3-Year Low?

While the May 2025 rate of 3.66% is the lowest since February 2025, it pales compared to the 2.0945% trough of late 2023—a 30-month low that marked a 1-percentage-point drop in a single day. This earlier decline was fueled by capital inflows into equities and easing regional trade tensions. The current dip reflects a cyclical adjustment rather than a structural shift.

Looking Ahead: Fed Policy and HKMA’s Role

The HKMA’s defense of the HKD peg remains tied to U.S. monetary policy. Should the Fed cut rates—as some economists predict later in 2025—the HKMA would likely follow suit, further depressing HIBOR. However, uncertainties around U.S. tariffs and China’s economic growth could reignite volatility.

Conclusion

Hong Kong’s interbank rates are at a crossroads. While the May 2025 drop to 3.66% underscores the HKMA’s effectiveness in managing liquidity, it is far from the three-year low of 2.09%. Borrowers will benefit from cheaper financing, but investors must remain cautious. The path forward hinges on global macroeconomic stability and the HKMA’s agility in balancing exchange rate stability with domestic credit conditions.

In short, the current rate environment offers opportunities for strategic borrowers but demands vigilance amid lingering risks. As Hong Kong’s financial heartbeat continues to pulse, its interbank rates will remain a critical barometer of regional and global economic health.