HKMA INTERVENES TO DEFEND PEG
Central bank buys more than US$2b worth of local currency
HONG Kong’s de facto central bank said yesterday it had bought up more than US$2 billion (RM8.2 billion) worth of local currency to maintain a long-held peg to the US dollar.
The intervention — which began on Wednesday and was the latest in a series of moves to support the currency this year — comes as the US dollar rockets on the back of turmoil in emerging markets and the ongoing Turkish lira crisis.
The buyout means that the Hong Kong Monetary Authority (HKMA) would have just US$12 billion in its reserves by the end of the week, the lowest level in a decade, said Bloomberg News.
HKMA chief executive Norman Chan said the outflow of funds was a “normal and inevitable process for Hong Kong dollar interest rate normalisation”.
Yesterday, the Hong Kong dollar was trading at HK$7.8495 (RM4.10) against the US dollar, very close to the edge of its permitted range of HK$7.75 to HK$7.85.
Under the city’s Linked Exchange Rate System, the HKMA is required to buy the local currency at HK$7.85 to US$1 to ensure exchange rate stability.
Hong Kong has maintained a decades-old peg with the US dollar, which keeps it at the mercy of Federal Reserve policymakers.
The city’s dollar was linked to the greenback in 1983 in a bid to prevent a sell-off as it wobbled over fears about China’s reunification talks with Britain.
The HKMA said it stood ready to issue US$1 trillion “Exchange Fund Bills” to release liquidity in order to deal with possible sharp outflow from Hong Kong dollar.