Thu, Mar 14, 2019 - Page 10 News List

HK peg defense reaches US$692m amid weakness

Bloomberg

Hong Kong’s de facto central bank yesterday intervened to defend the local currency’s peg against the US dollar for the second time in days.

The Hong Kong Monetary Authority (HKMA) bought HK$3.925 billion (US$500 million) of local currency, according to its page on Bloomberg, after the Hong Kong dollar fell to the weak end of its HK$7.75 to HK$7.85 trading band.

It also purchased US$192 million worth at the end of last week, it said on Saturday.

The move would reduce the aggregate balance, a measure of interbank liquidity, to HK$70.9 billion today.

Continued intervention could see local borrowing costs rise at a faster pace if the aggregate balance falls below HK$20 billion, OCBC Wing Hang Bank Ltd (華橋永亨銀行) economist Carie Li (李若凡) said, adding that rates would remain low in the near term due to an increase in foreign capital flows and the territory’s large money base.

Rising local borrowing costs, which have lagged US rates despite the currency peg, would intensify pressure on home values in the world’s most expensive property market, and weigh on the territory’s economy. The aggregate balance stood at about HK$180 billion 11 months ago.

The territory’s one-month interbank borrowing costs, known as HIBOR, have risen 14 basis points to 1.49 percent this week, the highest since Jan. 8, and up from a low of 0.91 percent last month.

The equivalent US LIBOR is at 2.5 percent.

Traders would continue to sell the Hong Kong dollar against the greenback, as the additional yield to be gained is attractive, said Binay Chandgothia, portfolio manager at Principal Global Investors (HK) Ltd. The currency has traded near the weak end of its band for weeks.

HKMA Deputy Chief Executive Howard Lee (李達志) on Saturday attributed the gap to abundant liquidity in the currency market, weak demand for loans and a lack of large-scale initial public offerings in Hong Kong.

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