Photo: joshDubya at www.flickr.com
Oct. 20 (Bloomberg) — The Hong Kong Monetary Authority added funds to the banking system for the first time since December 2009 to prevent the city’s currency from strengthening beyond HK$7.75 to the U.S. dollar.The de facto central bank bought $603 million today at HK$7.75 to the dollar, according to an e-mailed statement from the authority. Spokeswoman Rhonda Lam confirmed the statement in a phone interview, saying the HKMA intervened during New York trading hours.
“Funds continue to flow into Hong Kong given the monetary easing in the U.S. and Europe,” Kenix Lai, a currency analyst at Bank of East Asia Ltd. in Hong Kong, said by telephone today. “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.”
“The recent increase in demand for the local currency is related to a less strained European market, weakness in the U.S. dollar and declining U.S. interest rates, which have prompted capital inflows into currency and equity markets in the region,” the HKMA said in today’s statement. “Upward pressures have similarly been observed in other Asian currencies,” it said.
The U.S. Federal Reserve initiated a third phase of so- called quantitative easing on Sept. 13, purchasing $40 billion of mortgage-backed securities per month, and said this will continue until the outlook for jobs improves “substantially.”
The city’s benchmark Hang Seng Index has risen 7.5 per cent since the Fed’s announcement and gained about 19 per cent from this year’s low on June 4. Home prices have surpassed their October 1997 peak, according to Centaline Property Agency Ltd.
“The HKMA will remain closely vigilant of the market developments,” the authority said in today’s statement. Today’s move means the banking system’s aggregate balance will expand to HK$153.3 billion ($19.8 billion) on Oct. 24, it said.
The Hong Kong dollar is allowed to trade in a range of HK$7.75 and HK$7.85 per U.S. dollar. When it reaches the so- called strong end of the permitted trading range, the HKMA offers to buy U.S. dollars to prevent further appreciation.
The linked exchange rate was adopted in 1983 when negotiations between China and the U.K. over the city’s shift to Chinese control spurred capital outflows. In 2005, policy makers committed to limiting the currency’s decline to HK$7.85 per dollar and capping gains at HK$7.75.
Joseph Yam, the former Hong Kong monetary chief who helped introduce the peg and defended it against speculators during the Asian financial crisis, said in June the city should review its currency policy. Hong Kong’s officials have reiterated many times there are no plans to adjust the peg.
–Editors: Nicholas Wadhams, Nerys Avery
To contact the reporters on this story: Fion Li in Hong Kong at [email protected]; Vinicy Chan in Hong Kong at [email protected]
To contact the editor responsible for this story: Jim McDonald at [email protected]
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