HKMA intervenes to defend Hong Kong dollar peg, taking currency purchases beyond HK$100 billion amid capital flight
- The HKMA has bought HK$104.28 billion and sold US$13.28 billion in 14 interventions since May, surpassing the previous annual interventions in 2018 and 2019
- Widening yield gap has stoked capital flight from Hong Kong as commercial banks in the city refrained from raising their rates
The authority bought HK$8.58 billion and sold US$1.09 billion on Thursday morning to support the peg after the local currency hit the weaker end of HK$7.85 per dollar amid concerns about a widening interest-rate gap, according to a statement by the de facto central bank.
Including the five moves, the HKMA has intervened 14 times this year by buying a total of HK$104.28 billion of local currency and selling US$13.28 billion of US currency. This has surpassed the purchases in 2018 of HK$103.48 billion, and HK$22.13 billion in 2019 – the most recent bouts of capital outflows.
The monetary authority is obliged to keep the local dollar within the HK$7.75 to HK$7.85 band under its linked exchange rate system. The HKMA also raised its base rate in lockstep under the system, while commercial banks in the city have so far refrained from raising their lending rates.
The widening rate-gap has induced capital flight from Hong Kong as investors searched for higher yielding assets elsewhere, weakening the local currency. Hong Kong pegged its currency at HK$7.80 per dollar in 1983 and later introduced the trading band in 2005.