HK moves again to halt currency rise
sold its own currency for the 2nd time in less than a week to halt the rise of the Hong Kong dollar against the US dollar, selling HK$3.9bn (US$500m) on Tuesday.
By Rahul Jacob in Hong Kong
Hong Kong’s central bank sold its own currency for the second time in less than a week to halt the rise of the Hong Kong dollar against the US dollar, selling HK$3.9bn (US$500m) on Tuesday.
The intervention follows the Hong Kong Monetary Authority’s swapping of HK$4.67bn on October 19 for US dollars, the first time the central bank had made such a move since December 2009.The mechanisms that govern Hong Kong’s currency board, by which the Hong Kong dollar’s exchange rate is linked to the US dollar, mean that the central bank must buy US dollars when the Hong Kong currency pushes up against the upper limits of its trading band of US$1 to HK$7.75. On Tuesday, the Hong Kong dollar was at HK$7.7501, according to Bloomberg.
Analysts said that the strong inflow of money into Asian currencies and stock markets has been prompted by increasing investor appetite for emerging markets as they sought better returns. In a recent note to clients, HSBC said that the more “equity-oriented” currencies such as the Indian rupee, the Korean won and the Taiwanese dollar had outperformed as money had flowed into local stock markets.
On Monday, ANZ said that it believed “the strong inflow into the HKD money market relates to the recovery of global investors’ appetite towards Hong Kong’s stock market”.
The link of the Hong Kong dollar to the US dollar was put in place in 1983 when negotiations about the future of the British colony after 1997 had sparked nervousness in the local business community.
In the past couple of years, the fact that the dollar peg allows the local central bank little latitude to curb asset price inflation in the city through raising interest rates, for example, has led to calls from HKMA’s previous chief executive Joseph Yam, to reconsider the currency mechanism.
Property prices in Hong Kong are among the highest in the world as local and mainland Chinese investors have rushed to buy apartments in the city as a hedge against inflation.
Government officials, however, have stressed that the linked exchange rate serves the city well by giving the financial centre the stability it needs. The lack of convertibility of the Chinese renminbi also makes it an unlikely currency for the Hong Kong dollar to be linked to despite the strong economic ties between China and Hong Kong.
ANZ said that it remained confident that the system would stay in place for the foreseeable future. “The intervention suggests that the HKMA will continue to defend the HKD peg,” it said. “The currency reserve is sufficiently strong to defend against not only normal capital flow but also speculative pressure?.?.?.?The HKMA intervention and recent strength of the HKD will probably be temporary and successful.” |
