Hong Kong interest rates broadly follow their US dollar counterparts over the long run, but there is scope for short-term deviations, Monetary Authority Chief Executive Joseph Yam says.

In his latest Viewpoint article, Mr Yam noted such deviations, particularly for interest rates for short-term money, are possible as market sentiment is influenced by discussions or events perceived to have a bearing on the sustainability of the Linked Exchange Rate system.

However, Mr Yam pointed out the deviations will be temporary, as interest rates in the Hong Kong dollar interbank market have increased to more than 2%, and the amount of liquidity in the interbank market is still at an unusually high level.

"It will be interesting to observe the extent to which the significant firming of interbank interest rates will lead banks to adjust their best lending rates and retail deposit rates upward," he wrote.

Mr Yam said it is not clear whether the best lending rate, and consequently the mortgage rate that is priced against it, will experience a full "catch-up" as the banking industry remains flexible.

"The increasing trend of Hong Kong interest rates is nevertheless clear, having regard to the economic circumstances in the US, the policy statements made by the Federal Open Market Committee of the Federal Reserve and our linked exchange rate to the US dollar," he added.