Hong Kong’s de facto central bank said Wednesday it expects more capital inflows into the city after its fourth intervention in the forex market in a week to curb the local dollar’s strength.
The Hong Kong Monetary Authority (HKMA) said it sold a further HK$3.06 billion ($395 million) in late New York trading on Tuesday after two similar moves earlier in the day to weaken the Hong Kong dollar’s value, as the local unit hit its upper trading limit with the greenback.
The late sale brought the total amount the HKMA has sold to a combined US$1.85 billion from the four interventions since Friday – the first time the de facto central bank intervened in the currency market in three years.
“We expect net inflows into the Hong Kong dollar will continue for some time,” the HKMA said in a statement.
“Since the US Federal Reserve’s launch of the third round of quantitative easing, demand for Hong Kong dollar has increased, and similar rises are also noted in other currencies within the region,” it said.
The authority is obliged to act by buying or selling the local dollar whenever it touches either side of the HK$7.75-HK$7.85 trading band against the US dollar, to which it has been pegged for 29 years.
Analysts have said the interventions did not come as a surprise, and are expecting more action from the authorities as hopes for the global economy have picked up following monetary easing measures in the United States and Europe.
“If it continues to touch the 7.75 level, we will have to continue to act,” HKMA deputy chief executive Eddie Yue told reporters.
The moves reignited talk of abolishing the local currency’s peg to the US dollar, with some leading officials – including the former head of the HKMA Joseph Yam – calling for a review.
Yam said in a research paper earlier this year it was time for other options to be explored, including a peg to a basket of currencies or a complete float.
The HKMA made multiple interventions to weaken the local currency in 2008 and 2009 at the height of the financial crisis, as traders moved into the Hong Kong dollar, which was seen as a safe haven.
Category: Hong Kong