Hong Kong defends its currency peg

HONG KONG: Hong Kong’s de facto central bank stepped in for the first time since 2009 to prevent the city’s currency from rising against the US dollar after it touched the upper limit of a range that triggers an intervention.

The Hong Kong Monetary Authority said it bought US$603mil at HK$7.75 per dollar, which is the so-called strong side of the permitted convertibility range of HK$7.75 to HK$7.85 that obligates intervention. The move, announced in an e-mailed statement on Saturday, was confirmed by spokeswoman Rhonda Lam who said the HKMA acted during New York trading hours.

“Funds continue to flow into Hong Kong given the monetary easing in the United States and Europe,” said Kenix Lai, a currency analyst at Bank of East Asia Ltd in Hong Kong. “That’s evident by the rising stock market and property prices. I expect HKMA will still have to intervene in the near term as capital inflows continue.”

Policy makers from around the world have bemoaned the economic threat of stronger exchange rates from the US Federal Reserve’s monetary easing.

At International Monetary Fund meetings in Tokyo this month, Brazil’s Finance Minister Guido Mantega vowed to shield his country from the “selfish” monetary policies of some developed nations, while Philippine central bank governor Amando Tetangco said the Fed was causing “challenges to monetary policy in emerging markets.”

The Fed initiated a third phase of so-called quantitative easing on Sept 13, purchasing US$40bil of mortgage-backed securities per month, and said this will continue until the outlook for jobs improves “substantially.”

The European Central Bank and Bank of Japan have also added to stimulus.