Zhongyuan Mortgage: The influx of risk aversion funds has increased the liquidity of the Hong Kong dollar, and the 1-month interbank interest rate has hit a seven-month low.

Today (23rd March), the one-month Hong Kong Interbank Offered Rate (HIBOR) related to mortgages further dropped to 1.95%, hitting a new low since 2026, and also the lowest level in over seven months since 15th August 2025 (1.45%). Winnie Wong, General Manager of Central Mortgage, stated that with the current market mainstream plan (H+1.3%) and capped interest rate (P-1.75% (P: 5%) or P-2% (P: 5.25%)), the actual interest rate is calculated at 3.25%. With today's one-month HIBOR dropping to 1.95%, this means that the actual interest rate has just touched the cap of 3.25% (1.95% + 1.3% = 3.25%). If the HIBOR continues to drop below 1.95%, the interest rate will fall below the cap, reducing the actual interest rate to below 3.25%. Winnie Wong explained that the ongoing US-Iran conflict in March has led to instability in the Middle East, causing safe-haven funds and some foreign capital to flow into Hong Kong, increasing the liquidity of the Hong Kong dollar this month. Since 9th March, the one-month HIBOR has dropped significantly from the February average of 2.48% to around 2%, and today it dropped to 1.95%. Based on the current mainstream interest rate calculation (P-1.75% (P=5%), actual interest rate 3.25%), the HIBOR has reached the cap of 3.25%, and any further slight drop in the HIBOR will bring the interest rate below the current cap of 3.25%. However, Winnie Wong pointed out that the decline in the HIBOR this month and the widening US-HK interest rate spread may be a short-term phenomenon. It is worth noting that while there has been a recent drop in the HIBOR, factors indicating a possible rise in the near future are also present. On one hand, the inflow of funds has increased the liquidity of the Hong Kong dollar, but has not yet pushed up the surplus in the banking system. On the other hand, the Hong Kong interest rate is significantly lower than the US interest rate, leading to an increase in carry trade activities in which the Hong Kong dollar is exchanged for the US dollar, causing the Hong Kong dollar to weaken recently. Winnie Wong further analyzed that this decline in the HIBOR differs from the situation in May to July 2025. Last year, there was a significant inflow of funds that greatly increased the surplus in the banking system to over a trillion Hong Kong dollars, resulting in the one-month HIBOR plummeting to around 0.53% at one point. However, the surplus in the banking system is currently maintained at around 53.8 billion Hong Kong dollars. Additionally, the recent drop in the Hong Kong dollar HIBOR has widened the US-HK interest rate spread to 1.7% to 2%, leading to increased carry trade activities switching the Hong Kong dollar for the US dollar, these factors together may result in a rise in the HIBOR, especially with recent weakening of the Hong Kong dollar. If the Hong Kong dollar weakens to the point of hitting the weak-side convertibility undertaking, the Hong Kong Monetary Authority will need to passively withdraw Hong Kong dollars, at which point the HIBOR will rise to a normal level. The approaching quarter-end is also an opportunity for the HIBOR to rise.