Interbank rates in Hong Kong softened after liquidity injection by the central bank overnight, but the city's currency remained strong despite the Hong Kong Monetary Authority's (HKMA) measures.

The one-month Hong Kong interbank offered rate (Hibor) was closed at 1.5 percent, down from 1.54 percent on Tuesday.

The three-month Hibor fell 24 basis points to 2.55 percent, its lowest level since Sept 17.

Dealers expected the money market rates across Asia to remain soft after the efforts by central banks and governments around the world.

The HKMA injected HK$814 million into the banking system when the currency rose to the top of its trading band at 7.75 to the US dollar during New York trading hours on Tuesday, nearly its upper limit.

It was the sixth injection in two weeks, involving about HK$23.9 billion.

Exchange rate

The Hong Kong currency is pegged at 7.8 to US dollar but can be traded between 7.75 and 7.85.

However, the Hong Kong dollar stayed close to its upper trading band over the past few weeks amid persistent demand for funds.

Citigroup sees capital inflows. "Funds from other Asian markets are seeking a safe heaven," the US bank's analyst Joe Lo said.

The efforts by the Hong Kong central bank, such as the 100 percent guarantee on bank deposits, attracted foreign funds.

The interbank rates softened after the central bank injection but failed to pull down the currency.

Hong Kong dollar closed at 7.7504 against the dollar, having touched a low of 7.7516 in the morning.

More injection expected

One dealer at a local bank expects the HKMA will continue the liquidity injection if the local currency remains strong, the interbank rates are expected to fall further.

Citigroup said it expected the three-month Hibor to fall to 1.6 percent by the end of the year on expectations that the US Federal Reserve will cut interest rates by 50 basis points in December to 0.5 percent from the current one percent.

But the lower Hibors in coming months would, however, be insufficient to prompt banks to cut the prime lending rate.

"Bank would exploit the lower Hibors to recoup their recent losses in net interest margins rather than pass on the lower funding costs to customers by cutting the prime rate," Lo further pointed out.

Earlier, top local lender HSBC said that it expected the savings rates and best lending rates in Hong Kong to remain unchanged for this year and next.

(HK Edition 11/06/2008 page2)