The Shifting Sands of Hong Kong's Economy: A Closer Look at March's Monetary Dance

The Hong Kong Monetary Authority, or HKMA as we often call it, has just rolled out its Consolidated Monetary Statement for March 2024, and honestly, it presents quite the nuanced picture. What's happening beneath the surface, you ask? Well, it seems the city's financial currents are shifting, ever so slightly, with some notable movements in both how money is held and how it's borrowed. It's rarely a straight line, is it? And this month certainly isn't.

First, the good news, or perhaps, the cautiously optimistic news: total deposits in Hong Kong actually edged up by 0.5% in March. That's a small but significant climb, wouldn't you say? Diving deeper, Hong Kong dollar deposits themselves saw a 0.4% bump, while foreign currency deposits, for their part, grew by 0.6%. Now, if we pull back and look at the whole first quarter of 2024, the picture steadies a bit – total deposits remained, by and large, unchanged. Yet, HKD deposits still managed a modest 0.2% increase over those three months, even as foreign currency deposits dipped ever so slightly, by 0.1%. So, people are still putting money away, it seems, perhaps a little more in local currency.

But then, there's the other side of the coin, isn't there? Total loans and advances, across the board, saw a bit of a contraction in March, down 0.4%. And this wasn't just an isolated hiccup. Loans specifically for use here in Hong Kong decreased by 0.3%, while those extended for activities outside the city dropped a bit more sharply, by 0.7%. Over the first quarter? The trend continued: total loans were down 0.5%, with local loans dipping 0.2% and overseas-linked loans seeing a more substantial 1.2% decrease. It begs the question, doesn't it, about the appetite for borrowing, or perhaps, the cautious approach from lenders. Consequently, the Hong Kong dollar loan-to-deposit ratio also softened, sliding to 85.0% at March's end from 85.7% just a month prior.

Moving onto the broader monetary aggregates, Hong Kong dollar M2 and M3 – which, in essence, measure the money supply – both saw a 0.3% increase in March. Intriguingly, they stood largely unchanged compared to a year ago. And looking at the total M2 and M3, which include all currencies, they also increased by 0.5% in March and by 0.3% year-on-year. For once, perhaps, a moment of stability? Now, a standout performer amidst all this was undoubtedly the Renminbi deposits in Hong Kong. They surged, yes, absolutely surged by a notable 4.3%, reaching a hefty RMB1,098.8 billion by the close of March. Cross-border RMB trade settlement, reflecting Hong Kong’s crucial role, hit RMB1,069.9 billion for the month, with the interbank RMB market seeing an average daily turnover of RMB152.8 billion. That, my friends, is a clear signal of continued strength in RMB internationalization through Hong Kong.

So, what's the takeaway from all these figures, this intricate dance of numbers? In truth, March 2024 painted a picture of a city where people are perhaps saving a little more, particularly in local currency, while the lending taps, well, they're just a touch tighter. The remarkable growth in Renminbi deposits, however, continues to underscore Hong Kong’s unique and vital position as a global hub for China's currency. It's a mixed bag, certainly, but one that reflects the ever-evolving, always dynamic nature of this incredibly resilient financial centre. And for anyone watching the city's economic pulse, these statements are always worth a closer look, aren't they?