Hong Kong banks borrowed the largest amount of short-term cash in almost five years from authorities, a move pointing to a sudden demand for liquidity.

The Hong Kong Monetary Authority – the city’s de-facto central bank – loaned out HK$4.8 billion through its discount window, the most since December 2019, according to data compiled by Bloomberg. Lenders have tapped the facility six times in about a month, with the next largest amount of HK$3.3 billion.

The lending comes amid a climb in borrowing costs in the city, where one-month Hong Kong interbank offered rates have climbed to the highest in around two months. Demand for local assets amid a Chinese stock surge has contributed to the increase in Hibor, as the supply of the Hong Kong dollar tightened.

“The more often usage of discount window mirrored tighter Hong Kong dollar liquidity conditions, together with soaring HK equities settlement demand, increasing margin financing activities, ongoing silver bond subscriptions as well as low aggregate balance,” said Ken Cheung, chief Asia FX strategist at Mizuho Bank.

The tighter liquidity has narrowed the gap between US and Hong Kong borrowing costs, bolstering the local dollar, he added.

Bloomberg