Monetary Authority sells Hong Kong dollar for third time in four days

For third time in four days, HKMA sells down currency, in part because of Japanese moving cash out of mainland amid tension over islands

PUBLISHED : Wednesday, 24 October, 2012, 12:00am
UPDATED : Thursday, 23 February, 2017, 4:55pm

The Monetary Authority again intervened in the currency markets yesterday to weaken the Hong Kong dollar, the third time in four days it has stepped in as "hot money" continues to flow into the city.

Market watchers believe that the capital inflows are coming from the United States, driven by the latest round of monetary easing there.

But some also think money is flowing from Japanese businesspeople who are shifting some mainland assets to Hong Kong as tensions have increased between Beijing and Tokyo over ownership of islands in the East China Sea known as the Diaoyus in China and the Senkakus in Japan.

Given that political tensions show little sign of easing, analysts think the funds will continue to flow in and the HKMA, the city's de facto central bank, will have to continue to intervene. The Hong Kong dollar is pegged to the US dollar and must trade within a range of HK$7.75 and HK$7.85 to the greenback.

The HKMA sells the Hong Kong dollar when the exchange rate appreciates to the upper limit of HK$7.75. Conversely, it buys the local unit to support it when it dips to the lower limit.

Yesterday, the authority said it intervened twice and sold a combined US$855 million worth of Hong Kong dollars at the upper end, or HK$6.63 billion.

"The HKMA will remain closely vigilant of the market developments" and maintain the exchange-rate stability, a spokesman for the authority said.

Yesterday's moves were bigger than Saturday's intervention, when the HKMA sold US$603 million worth of Hong Kong dollars. That was the authority's first foray into the currency markets since 2009.

"The tense relations between China and Japan have led some Japanese companies on the mainland to shift their money from the mainland to Hong Kong, which is considered as a safe haven," said Louis Tse Ming-kwong, director of VC Brokerage.

"This will benefit the stock market, but will lead to inflation and an asset bubble problem."

Hong Kong is already struggling to contain an overheated property market. And on Monday, the stock market's benchmark Hang Seng Index closed at its highest level in 14 months, adding 145.79 points, or 0.68 per cent, to close at 21,697.55.

The HKMA had to intervene significantly after the 2008 global financial crisis to manage an inflow of capital between October 2008 and the end of 2009 that the authority has estimated at HK$640 billion.

Joseph Tong Tang, executive director of Sun Hung Kai Financial, said he expected the current inflow to continue for weeks, or even months.

"This will keep the HKMA intervening in the money market again and again," he said.