In his weekly Viewpoint column published Thursday, Chief Executive Joseph Yam said the authority has conducted a series of market operations since September, including buying U.S. dollars against Hong Kong dollars, and selling Hong Kong dollars against U. S. dollars.
In response to the much larger aggregate balance and the authority's measures to improve liquidity, local interbank rates eased across the board.
The overnight Hong Kong Interbank Offer Rate (HIBOR) rose to 4 percent on Sept. 18 but has eased to 0.2 percent lately, while the one-month HIBOR that rose to a high of 6 percent has retreated to 1. 1 percent.
"This process was also helped by efforts around the world to provide liquidity to the markets, coupled with an improvement in market sentiment. Lower interbank short-term rates should provide a more accommodative monetary environment and allow banks to pass on lower funding costs to sound borrowers, although this may not happen straight away," Yam said.
Yam said the interbank money market was showing signs of gradual improvement, although interbank lending for longer tenors remains limited as credit risks persist.
"It will take time - and the absence of any further nasty surprises - for the money market to return to normal functioning. In the meantime interest-rate volatility may continue given fragile sentiment and market uncertainties. There is thus a need for all parties concerned - banks and their customers - to remain prudent in the management of interest-rate risk under the current market conditions," he said.
The authority will continue to monitor the markets and stand ready to take further measures if necessary in light of new developments, he added.
