HKMA warns of ‘possible volatility’ in local interest rates

The Hong Kong Monetary Authority has urged the public to “prepare for possible volatility in local interest rates” ahead of a potential rate hike in June.

Norman Chan, chief executive of Hong Kong’s de facto central bank, said in a statement on Thursday that the market is expecting the US to increase rates in June, in a move that is likely to be followed in Hong Kong.

His comments come a day after the US Federal reserve said that it would keep its monetary policy unchanged, but signalled that tightening is on the agenda.

Mr Chan said: “The HKMA reminds the public to manage risks prudently to prepare for possible volatility in local interest rates and asset markets.“

Mr Chan added that the current gap between the Hong Kong dollar and US dollar interest rates is attracting “carry trade activities”, which involves selling lower-yielding Hong Kong dollars to buy higher-yielding US dollars.

However, Mr Chan said this has “resulted in the weakening of the HKD”, prompting HKMA to intervene and buy more than HK$51bn of the local currency in April.

The Hong Kong dollar, which is pegged to the US currency, had slumped to its weakest level since its current trading band was set in 2005. The Hong Kong dollar can trade between HK$7.75 and HK$7.85 against the US dollar. HKMA would intervene if the currency moves beyond the band, and if banks are unwilling to trade at that level.

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HKMA warns of ‘possible volatility’ in local interest rates

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