HKMA injects HK$6.2b into bank system to check currency's rise

PUBLISHED : Friday, 24 April, 2009, 12:00am
UPDATED : Friday, 24 April, 2009, 12:00am

The Hong Kong Monetary Authority pumped HK$6.2 billion into the banking system yesterday, the third consecutive day of injection, to keep the local currency from rising above the trading band amid strong capital inflows.

Analysts said the de facto central bank would probably pump more money into the system since the Hong Kong dollar barely changed at HK$7.75 to the US dollar, the upper trading band, after the injections.

Altogether, the HKMA injected HK$12.788 billion into the banking system over the past three days. It pumped in HK$2.713 billion on Tuesday and HK$3.875 billion on Wednesday.

As a result, the aggregate balance, a measure for liquidity, will rise to a record HK$180.548 billion on Monday when yesterday's transactions are settled.

Dennis Wong Wai-hung, the head of markets at Hang Seng Bank, said the strong demand for the Hong Kong dollar was partly because of the fund inflows.

'The stock and property markets seem quite active recently,' Mr Wong said.

Foreign capital might be attracted by Hong Kong's economic fundamentals and an upcoming initial public share offering, analysts said.

China Zhongwang Holdings, a manufacturer of aluminium products, plans to raise as much as HK$12.32 billion in one of the biggest initial public offerings so far this year.

Eddy Lui Kin-kar, the head of treasury at Hong Leong Bank Hong Kong, said investors parked their money in the city as they perceived limited exchange risk, thanks to the peg to the greenback. 'Some people see Hong Kong as a safe haven,' he said.

Separately, a currency dealer said the recent rise in the Hong Kong dollar was due in part to some speculation about the fate of the currency peg amid growing talk of the internationalisation of the yuan.

But Mr Wong disagreed because of the lack of hedge fund activities.

Mr Lui also said it was unlikely that the Hong Kong government would make any changes to the currency peg because it was an important element to the city's stability.

Hong Kong interbank rates remained soft yesterday, with one-month and three-month interest rates standing at 0.23 per cent and 0.87 per cent, respectively.