Hong Kong moves to stabilise rates, say analysts
By Mishi Saran
HONG KONG, Sept 5 (Reuters) - Policies that the Hong Kong Monetary Authority announced on Saturday would make interest rates less volatile by allowing much greater liquidity in the banking system, analysts said.
''It means that interest rates in Hong Kong will be a lot less volatile...,'' said Stuart Gulliver, Treasurer at Hongkong Bank.
''They are very positive measures for Hong Kong, very positive for the stability of interest reates,'' Gulliver said.
The Hong Kong Monetary Authority (HKMA) on Saturday announced seven measures it said would strengthen the system under which the Hong Kong dollar is pegged to the U.S. dollar.
The measures would reduce interest-rate volatility and make Hong Kong's currency board arrangements less susceptible to manipulation by speculators, HKMA chief executive Joseph Yam told reporters.
''These measures aim at strengthening Hong Kong's currency board arrangements and achieving an even higher degree of transparency and disclosure,'' he said.
According to a senior analyst, the authorities had identified market structures which were allowing interest rates to be squeezed higher and were addressing those points.
''What they seem to have done is taken a series of measures to ensure a low interest rate environment,'' the analyst said.
Interbank interest rates soared to 300 percent briefly last October at the height of a speculative attack. They have come off sharply since then, but remain at punishingly high levels.
At 0330 GMT on Friday, the benchmark three-month Hong Kong Interbank Offered Rates was 10.75 percent.
Gulliver said the new measures could widen the aggregate balance in Hong Kong's banking system from its current pool of about HK$2 billion to potentially over HK$40 billion.
In the past few weeks the aggregate balance has been HK$1.87 billion, which bankers say is tight.
Gulliver said the small size of that pool had made it relatively easy for market players to manipulate Hong Kong's interest rates.
Under the currency board system, sales of Hong Kong dollars for foreign currency automatically drain that pool of money and, thereby, push up interest rates -- and usually cause a fall in the stock market.
Under the new system, the aggregate balance is increased to a potential HK$40 billion, making it harder to dent Hong Kong's liquidity and therefore harder to force interest rates up.
''The danger of it is, clearly someone could build up a short position of HK$40 billion,'' Gulliver said.
But he said that disclosure measures would ensure that those holding steep positions were known.
The moves effectively set a base rate which forms a cap for the overnight rate, the senior analyst said.
''In the short term, there is an expectation of lower interest rates,'' he said.
''Anyone who has sold Hong Kong dollars in the forward markets will want to buy that in. It will bring liquidity back into the market,'' he said.
Speculative pressure on the Hong Kong dollar sparked massive, unprecedented government intervention in the stock and futures markets in the past month.
The Hong Kong government is estimated to have spent about HK$120 billion (US$15 billion) on shares last month to boost prices and squeeze out short sellers.
Gulliver said the HKMA had consulted the International Monetary Fund before implementing these measures. It had also been advised by the Bank of England.
biz.yahoo.com
It looks like we might get some stabilization overseas soon too.
Regards, Jeff
|
