Core Insights - The phenomenon of Hong Kong dollar (HKD) interest rates being persistently lower than US dollar (USD) interest rates is primarily attributed to long-term net capital inflows leading to excess HKD liquidity [1][6] - The significant growth in HKD monetary base since 2000 is largely due to Hong Kong's status as a free trade port and a gateway between China and the world, resulting in substantial international capital inflows, particularly into the securities market [1] - The HKD/USD exchange rate has remained close to the strong-side guarantee level of 7.75, reflecting the impact of these capital inflows [1] Group 1 - The demand for short-term foreign exchange fund notes has surged as Hong Kong banks manage liquidity in the context of ongoing net capital inflows [2] - The Hong Kong Monetary Authority (HKMA) has increased the supply of high-quality foreign exchange fund notes, leading to an excess of HKD liquidity in the market [2] - The HKD swap market plays a crucial role in HKD funding, with active trading and strong liquidity, resulting in actual swap points being consistently lower than theoretical swap points [2] Group 2 - The carry trade between HKD and USD offers some opportunities, but the strategy is subject to significant short-term volatility, making it difficult to maintain a zero interest rate differential over the long term [6] - Market interventions by the HKMA can have a substantial impact, such as causing rapid widening of the HKD/USD interest rate spread following interventions [6] - The persistent lower interest rates of HKD compared to USD are influenced by multiple factors, including excess liquidity from long-term capital inflows, strong demand for HKD in the swap market, and the short-term volatility of carry trades [6]