I refer to your article 'Rate uncertainty raises spectre of mortgage void' in Business Post on Thursday, February 5, and would like to clarify some of the misunderstanding reported therein.
You said that: 'Hong Kong dollar traders reported aggressive open market operations by the monetary authority this week, with it pumping liquidity into the financial system. While short-term rates are lower, such ad hoc intervention is criticised for distorting the currency board system.' This is factually incorrect. As you will note from the figures on market activities we publish every day, the aggregate clearing balance maintained by banks with the Hong Kong Monetary Authority (HKMA) stayed at a stable level of about $16 billion during this week. There was indeed a notable increase when compared with a level of about $7 billion on January 20 and 21.
However, it is important to note that the increase in the level of interbank liquidity was matched by an inflow of funds into the Hong Kong dollar in line with the principles of the currency board system. The HKMA did not artificially pump in liquidity to depress Hong Kong dollar interest rates.
The inflow of funds into the Hong Kong dollar and the across-the-board decline in interbank interest rates (for example, one-month Hibor eased from 19 per cent in the middle of last month to 7.25 per cent early this month) reflected an improvement in market sentiment which has been aided by a stabilisation of the external environment.
Regional currencies, including the rupiah, won and baht have firmed significantly since late last month, and regional stock markets registered gains of 20 to 60 per cent from the middle of last month to early this month.
Your article also mentioned that: 'some reports suggest radical plans are afoot which would see substantial changes to the peg' and that 'talk has centred on adopting an option insurance scheme, US dollar liquidity adjustment or most radically, letting the public convert Hong Kong dollars directly with the exchange fund rather than simply the note-issuing banks'.