Hong Kong Monetary Authority steps in to prop up currency as dollar falls to 35-year low
HKMA chief executive Norman Chan says the city’s de facto central bank is fully capable of maintaining the stability of the Hong Kong dollar and there is no need to be concerned
Hong Kong’s de facto central bank, the Hong Kong Monetary Authority (HKMA), triggered the weak-side convertibility undertaking by selling US dollars late on Thursday evening after the Hong Kong dollar deteriorated to 7.8500 per US dollar, its weakest level in 35 years and touching the lower limit of its trading band for the first time.
“The HKMA sold US$104 million at 7.8500, the aggregate balance will be reduced by HK$816 million to HK$178,961 million on April 16,” an HKMA spokesperson said in a statement.
Norman Chan, the HKMA chief executive said: “This is the first time that the weak-side CU of 7.85 is triggered after the HKMA shifted the weak-side CU to that level in 2005, as part of the ‘Three Refinements’ to the operation of the Linked Exchange Rate System (LERS). I reiterate that the HKMA will buy Hong Kong dollar (HKD) and sell USD at 7.85 level to ensure that the HKD exchange rate will not weaken beyond 7.8500. Such operations are normal and in accordance with the design of the LERS.
“Depending on capital flows, the weak-side CU may be triggered again in the future. The HKMA is fully capable of maintaining the stability of the HKD and managing large scale capital flows. There is no need to be concerned.”
Earlier on Thursday, the HKMA had said it would not necessarily step in to prop up the currency.
Traders said rising market uncertainty amid trade tensions was to blame, and that US-Hong Kong interest rate differentials continue to widen.
The city’s currency breached the critical level in the early hours of Thursday morning and several times again in the late afternoon before pulling back. It stood at 7.8499 at 5:30pm.