Standard Chartered's Greater China Economist, Chen Guanlin, stated that the bank expects HIBOR to largely mirror the trajectory of SOFR. The bank currently anticipates that the US Federal Reserve will not implement any interest rate cuts in 2026 and projects that the 3-month HIBOR will fluctuate around 3%, a revision from the previous forecast of 3.5%.
He added that, benefiting from AI-related investments, US economic growth is expected to accelerate, which could lead to a rise in the US inflation rate, thereby impacting the potential for US rate cuts. The bank foresees limited room for the Fed to cut rates in 2026.
Standard Chartered indicated that between late June and mid-August, the Hong Kong Monetary Authority (HKMA) purchased Hong Kong dollars and sold US dollars under the Linked Exchange Rate System, as the weak-side convertibility undertaking was triggered multiple times. Consequently, the aggregate balance of the banking system decreased from HKD 173.4 billion at the end of May to HKD 54.1 billion by the end of August, and had stabilized according to the latest update in October.
As the banking system aggregate balance has shrunk to a relatively equilibrium level, and based on the HKMA's statements, HIBOR may become more sensitive to changes in liquidity and US interest rates.
The bank pointed out that if the Federal Reserve were to increase the magnitude of rate cuts in 2026 to stabilize the labor market, it anticipates downside risks for HIBOR.
Furthermore, Initial Public Offerings (IPOs), stock dividend distributions, and other seasonal demands may continue to cause interest rate volatility.
Standard Chartered further noted that, given slowing capital inflows into the stock market and the ongoing recovery in the Hong Kong property market, it expects limited room for further depreciation of the USD/HKD spot rate in early 2026. However, initial tightening of HKD liquidity is possible due to year-end seasonal factors and, to a lesser extent, index rebalancing effects.
Simultaneously, due to persistent debt swap activities, the Hong Kong Dollar cross-currency swap basis may face further appreciation pressure.
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