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Hong Kong Monetary Authority (HKMA)

Monetary Authority intervenes to hold down value of the Hong Kong dollar

A flow of hot money into Asian currencies and markets forces the first intervention in 3 years

PUBLISHED : Sunday, 21 October, 2012, 12:00am
UPDATED : Sunday, 21 October, 2012, 4:15am

The Hong Kong Monetary Authority intervened in the currency markets for the first time in nearly three years yesterday to hold down the value of the Hong Kong dollar.

The currency has been pushed close to the upper limit of its trading band against the US dollar, to which it is pegged, by a flow of hot money into Asian currencies and stock markets from investors seeking better returns.

Analysts said the inflow of funds to Hong Kong would further spur property prices and the stock market, and forecast that the HKMA would be forced to intervene again.

The authority swapped HK$4.67 billion for US$603 million at a rate of HK$7.75 to the greenback, the upper limit of the currency's trading range.

The last time the HKMA bought US dollars to hold down the Hong Kong dollar's value was in December 2009.

The authority said the recent increase in demand for the local currency was the result of reduced strains in European markets, a weak US dollar and declining US interest rates, which had prompted capital inflows into currency and equity markets in Asia. Other Asian currencies had also strengthened, it said.

"Funds continue to flow into Hong Kong, given the monetary easing in the United States and Europe," said Kenix Lai, a currency analyst at Bank of East Asia in Hong Kong. "That's evident by the rising stock market and property prices. I expect the HKMA will still have to intervene in the near term as capital inflows continue."

Dr Li Kui-wai, an associate professor of economics and finance at City University, believes the flow of funds into Hong Kong will give the city's booming stock market a further boost. "It will also affect the property market. Property prices are already in an up cycle. It may make property prices grow at a faster pace," he said.

The Hong Kong dollar is allowed to trade in a range of HK$7.75 and HK$7.85 to the US dollar. When it reaches the so-called strong end of the permitted trading range, the HKMA offers to buy US dollars to prevent further appreciation.

The authority said it would continue to monitor market developments closely and ensure the stability of the Hong Kong dollar.