Hong Kong Monetary Authority

HKMA in HK$12 billion currency cooling measure

De facto central bank steps into market again to offset US Fed's rounds of quantitative easing

PUBLISHED : Wednesday, 12 December, 2012, 12:00am
UPDATED : Monday, 30 May, 2016, 2:05pm

The Hong Kong Monetary Authority stepped into the currency market again yesterday to weaken the Hong Kong dollar as the rush of "hot money" continues to flow into the city.

The de facto central bank intervened twice, selling a total of HK$12.013 billion in Hong Kong dollars, in a move to maintain the exchange rate within its official limits.

The latest intervention increased Hong Kong's aggregate balance - the sum of balances on clearing accounts maintained by banks with the authority - to HK$220.341 billion.

The authority sold HK$6.2 billion in Hong Kong dollars in the first intervention yesterday and later sold HK$5.813 billion.

"The Monetary Authority needs to intervene because of the influx of hot money amid the third round of quantitative easing by the United States," financial services sector legislator Christopher Cheung Wah-fung said.

"The hot money would flow to the stock market, as shares are now undervalued. So the stock market would benefit in the short term, though hot money may flee quickly," Cheung said.

Since mid-October, the HKMA has made multiple interventions to mitigate the strengthening of the Hong Kong dollar as a result of the US Federal Reserve launching a third round of quantitative easing, which ultimately injects liquidity into global markets.

The Hong Kong dollar is pegged to the US dollar and must trade within a range of HK$7.75- HK$7.85 to the greenback.

The HKMA sells the Hong Kong dollar when the exchange rate appreciates to its stronger limit of HK$7.75.

Conversely, it buys the local unit to support it when it dips to its weaker limit.

The authority's chief executive, Norman Chan Tak-lam, warned on Monday of potentially volatile investment markets ahead due to hot money flowing into the city.

Chan said the HKMA had already bought US$7 billion by selling the equivalent amount of Hong Kong dollars since mid-October in its efforts to weaken the local currency.

Such action is not unprecedented in the city. The authority was obliged to intervene significantly during the global financial crisis that began in 2008 to manage an inflow of capital between October 2008 and the end of 2009 that it has estimated at HK$640 billion.