• Fri
  • Nov 28, 2014
  • Updated: 7:48pm

HKMA move on currency unlikely

PUBLISHED : Tuesday, 30 October, 2007, 12:00am
UPDATED : Tuesday, 30 October, 2007, 12:00am
 

The Hong Kong Monetary Authority is unlikely to repeg the currency or widen the trading band with the US dollar any time soon, even though the local unit remains strong, analysts say.

'Any move to widen the trading band could only trigger endless speculation on the Hong Kong dollar,' said Daniel Chan Po-ming, a senior investment strategist at DBS Bank (Hong Kong).

The local currency stood at 7.7509 in the late session yesterday after falling to 7.7513 at one point during the day.

The Hong Kong dollar has remained strong despite an injection of HK$1.55 billion by the HKMA into the banking system last week. Some analysts say that is because investors are increasingly buying stocks, speculating the strong Hong Kong dollar will force the HKMA to add more liquidity to the market, pushing down the interbank rates which will favour the equity market.

There may be another reason for the continued strength of the Hong Kong dollar.

'The news that [HKMA chief executive] Joseph Yam Chi-kwong will retire in 2009 may have some psychological impact,' one analyst said.

Mr Yam was instrumental in pegging the local dollar to the US dollar in 1983 and some people feel that if he left the system could change.

The analyst said the two-year Hong Kong dollar forward contract was active yesterday, indicating the market was betting the currency could rise to 7.6849 in two years.

'We believe that HKMA will widen the convertibility zone, possible only on the strong side,' Tim Condon, the head of research at ING said in a report.

However, an HKMA spokesman said: 'We have no intention of changing the system.'

Under the linked exchange rate system, the HKMA is committed to keeping the local currency within HK$7.75 to HK$7.85.

Dennis Wong Wai-hung, a senior manager at Hang Seng Bank, agreed that HKMA would not make any change to the trading band.

Mr Wong said the HKMA successfully defended the peg during the tumultuous 1998 financial markets when speculators attacked the Hong Kong dollar. He said he saw no reason why the authority could not maintain the peg when the currency was on the strong side this time.

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