Hong Kong steps in to support currency for fifth time

April 16, 2018


 

Hong Kong has taken action to support the local currency for the fifth time in less than a week, after the Hong Kong dollar repeatedly slumped to the low end of its permitted trading band.

 

The Hong Kong Monetary Authority said it had used its reserves to sell US$457m and buy HK$3.59bn on Monday, after the local currency had once again weakened to HK$7.85 against the dollar.

 

The intervention comes after HKMA bought a total of $HK3.26bn on Thursday night and Friday morning, followed by two more interventions late on Friday night and early Saturday morning, during New York trading hours.

 

The total amount of Hong Kong dollars purchased by the de facto central bank since Thursday amounts to HK$13.3bn.

 

Hong Kong’s currency is pegged to the US dollar, trading within a band that ranges from HK$7.75-HK$7.85 against the greenback. The HKMA is required to support the peg if the Hong Kong dollar slips to the weak end of the band and if other banks request HKMA to take action.

 

Norman Chan, chief executive of HKMA, warned last week that the weak end of the range might be triggered again, and that it is “fully capable of maintaining the stability of the HKD and managing large scale capital flows,” adding that “there is no need to be concerned”.

 

One of the main reasons for the Hong Kong dollar’s recent weakness is the divergence in interest rates between the US and Hong Kong. Analysts believe this will force the HKMA to take further action over the coming weeks to help stabilise interest rates and the currency.

 

The monetary authority’s communication strategy for the five interventions so far has been unconventional; rather than sending email alerts and updating the official website — methods favoured by other central banks globally — the HKMA has been updating selected journalists via messaging service WhatsApp.
 

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