Bank of America: If the Federal Reserve raises interest rates or triggers an exchange guarantee for the weak side of the Hong Kong dollar, there is a tail risk that Hibor will soar

The Zhitong Finance App learned that Bank of America Global Research indicates that the possibility that the Federal Reserve will raise interest rates further may weaken the Hong Kong dollar to 7.85, triggering intervention by the Hong Kong Monetary Authority and boosting the Hong Kong Interbank Interest Rate (Hibor). The bank believes that if the Federal Reserve raises interest rates further, there is a risk that Hibor will soar. If the aggregate balance of the banking system falls further after the intervention of the Hong Kong Monetary Authority, Hibor may rise to 6% overnight.

Bank of America economists expect the Federal Reserve to raise interest rates three more times this year. If this forecast comes true, the spread between the US dollar and the Hong Kong dollar will widen, which may push the Hong Kong dollar down to the weak exchange guarantee level. It also indicates that the total balance of the Hong Kong banking system is currently about HK$54 billion, which is already at a low level. If the Hong Kong Monetary Authority intervenes in the market and further reduces the aggregate balance, Hibor is likely to soar sharply.

However, Bank of America pointed out that Hibor's surge may last for a short time because the impact of initial public offering settlements on interbank liquidity is weakening, and loan deposit ratios continue to be low.

Despite this, the overall risk is biased towards the Hong Kong Monetary Authority without market intervention. The risk that Hibor will soar before the dollar even hits 7.85 against the HKD may have made traders unwilling to establish new arbitrage trading positions, the capital flowing into the Hong Kong stock market, and the uncertainty of the Fed's interest rate path. It will also reduce the possibility or number of interventions that the Hong Kong dollar will trigger intervention.