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SCMP Reporter

The Hong Kong Monetary Authority  announced yesterday  it would issue a further HK$8 billion in Exchange Fund bills to meet the demand from banks.
The de facto central bank said it would increase the size of the regular three-month issue of Exchange Fund bills and launch a special issue of 98-day Exchange Fund bills in the upcoming auction on December 2.
The HKMA is issuing the  bills because demand has been high as banks, fearful of lending to each other,  seek a safe haven to park their funds.
The banks can then use the  bills as collateral when they need to borrow  to maintain liquidity.
'The additional supply of short-dated Exchange Fund paper is primarily to meet the strong demand for Exchange Fund paper from banks for liquidity-management purposes due to heightened credit and liquidity concerns, and strong liquidity needs near the end of the year,' the HKMA said. However,  it said,  interbank liquidity  would remain abundant and  the new issue was  not expected to have a significant impact on liquidity and interest rates.
The HKMA has used Hong Kong dollars to buy the equivalent amount of US dollars to prevent the liquidity of the banking system from being reduced because of the  special issue.
After the  issue of the  bills, the aggregate balance will fall by HK$8 billion on December 3.
The HKMA has introduced emergency measures to help banks obtain funding.
These included direct lending to banks and widening the scope of the discount window by extending the lending period and accepting US dollar assets, not just Exchange Fund bills, as collateral.
In high demand
Banks are looking for a safe haven to park their funds
The de facto central bank plans to issue at its next auction bills worth, in HK$: $8b



HKMA to issue extra Exchange Fund bills