Hong Kong Monetary Authority (HKMA) chief Joseph Yam yesterday said the money markets rates may remain volatile due to uncertain market conditions.

Hong Kong interbank rates have fallen back to levels seen before the collapse of Lehman Brothers in mid-September.

However, Yam said it had yet to return to normal as longer-term lending remained limited amid the persistent credit risk.

The interbank money market is showing signs of gradual improvement, Yam said in his weekly column Viewpoint on the HKMA official website, but he stressed that it would take time for the money market to return to normal in the absence of any further surprises.

Uncertainties

Interest-rate volatility may continue given fragile sentiment and market uncertainties, Yam said.

Hong Kong interbank offered rates (Hibors) have been softened after the liquidity injections by the HKMA over the past few weeks.

The one-month Hibor was quoted at 1.15 percent in late afternoon yesterday, though the rate rose for the first since Oct 27. It hit a high of 6 percent on Sept 18, a few days after Lehman Brothers filed for bankruptcy.

The three-month Hibor was quoted at 2.2 percent, up a little on concerns about the financial health of companies after US stocks tumbled overnight and Hong Kong tracked a slump in Asian equities yesterday.

Lower interbank short-term rates should provide a more accommodative monetary environment and allow banks to pass on lower funding costs to sound borrower, although this may not happen straight away, he added.

Hong Kong dollar remains strong since late October on strong demands, and since Oct 31, the HKMA has been forced to intervene by injecting HK$19.4 billion through selling Hong Kong dollars against US dollars.

The strong demand for Hong Kong dollars was probably due to repatriation of funds and unwinding of interest carry trade as global jitters hit market participants to de-leverage and reduce their exposure to risk, Yam explained in his column.

Dealers expected that the HKMA may intervene again if the Hong Kong dollar remains strong.

Talking about the uncertain market conditions, Yam said the HKMA is ready to take further measures, if needed.

(HK Edition 11/14/2008 page2)