Nobody, genius.
Hong Kong Sells HK$7.8 Billion to Defend Dollar Peg (Update3)
By Aaron Pan
Oct. 31 (Bloomberg) -- The Hong Kong Monetary Authority sold HK$7.828 billion ($1 billion) to defend its currency's 24- year-old fixed exchange rate, as overseas investors bet the city's assets will benefit from growth in China's economy.
Today's sales were 10 times larger than the two previous interventions this month after Hong Kong's currency climbed to HK$7.75 per dollar, the top of its permitted trading range. Thomas Chan, a spokesman for the HKMA, confirmed the transaction.
``They'll keep on intervening, and the intervention will only get bigger and bigger,'' said Steven Chang, global markets vice president at State Street Bank & Trust Co. in Hong Kong.
Foreign investment in the city's stocks and initial public offerings by China's biggest companies have pushed the Hong Kong dollar up 0.3 percent this year, lagging behind the Chinese yuan's 4.7 percent gains. Hong Kong Chief Executive Donald Tsang, who spent $15 billion stopping the currency from weakening in 1998, has said this year he is committed to the peg.
The Hong Kong dollar, allowed to trade 5 cents either side of HK$7.8, was little changed at HK$7.7501 per U.S. dollar as of 6:41 p.m. local time. The U.S. dollar fell to a record low of $1.4467 against the euro, bringing its decline to 8.7 percent this year.
``The government is fully committed to the maintenance of the linked exchange rate system,'' the HKMA's Chan said today in a phone interview.
China Integration
The Hong Kong three-month interbank lending rate has declined to 4.689 percent, from as high as 5.451 percent two weeks ago. That's a signal that supply of the local currency has been increasing as overseas funds flood into the city.
The Hang Seng Index has surged 53 percent after China said Aug. 20 it will allow some citizens to invest directly in Hong Kong's stocks. The Hong Kong dollar's slide against Asian currencies and the euro has also made the city's equities cheaper for investors in the region and in Europe.
``The pressures are rising,'' Craig Chan, a currency strategist in Singapore at Lehman Brothers Asia Ltd., wrote in a note to clients. ``Hong Kong has become significantly integrated with China.''
The yuan's strength against the Hong Kong dollar has increased the cost of importing goods from China. Consumer prices rose 1.6 percent in September from a year earlier, a five-month high. After eliminating the temporary effect caused by a property rates waiver, inflation accelerated to 2.7 percent, the highest level in nine years.
Contrasting Fortunes
While China's economy grew 11.5 percent in the third quarter, U.S. expansion probably slowed to an annual rate of 3.1 percent in the same period, according to the median forecast of economists surveyed by Bloomberg News before a report due today. Hong Kong's economy grew 6.6 percent in the second quarter, more than triple that of the U.S.
The Federal Reserve cut its benchmark interest rate on Sept. 18 to 4.75 percent, while the People's Bank of China has raised its benchmark lending rate five times this year to 7.29 percent.
Hong Kong's government today predicted its budget surplus for the year ending March 31, 2008, will exceed its previous estimate of HK$25.4 billion ($3.3 billion) because of better- than-expected revenue from land sales. The U.S. government posted a budget deficit of $162.8 billion in the year ended Sept. 30 and its housing market is slumping.
In May 2005, the HKMA introduced a band, pledging to buy or sell the currency should it rise or fall more than 5 Hong Kong cents either side of HK$7.8 to the dollar. Prior to that it guaranteed to buy 7.8 Hong Kong dollars for every U.S. dollar.
Between November 1974 and the start of the current peg in October 1983, Hong Kong let its currency float. Before that it was linked first to the British pound and then the U.S. dollar.
While the Chinese government pledged to keep the Hong Kong dollar for 50 years, the fixed exchange rate isn't enshrined in the city's constitution. |
