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Banking & finance
BusinessBanking & Finance

Hong Kong defends currency peg for 32nd time this year amid outflow of capital chasing US dollar assets

  • The city’s de facto central bank bought HK$1.94 billion and sold US$247 million on Wednesday
  • The authority has bought a total of HK$215.035 billion and sold US$27.39 billion this year

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The HKMA, which is based in Hong Kong’s Two International Finance Centre, will need to intervene more in the near future to continue defending the peg, an analyst says. Photo: Nora Tam
Enoch Yiu
The Hong Kong Monetary Authority (HKMA) on Wednesday intervened in the foreign-exchange market for the first time in seven weeks to defend the local currency’s peg against the US dollar, following flight of capital from the Hong Kong dollar market after US rates rose to a 14-year high last week.

The HKMA, the city’s de facto central bank, bought HK$1.94 billion (US$247 million) and sold US$247 million, it said in a statement, to support the peg after the local currency hit the weaker end of its HK$7.75 to HK$7.85 trading band.

This marks the HKMA’s first intervention since August 9, and comes after capital outflows from Hong Kong within a week of the Federal Reserve raising its funds target rate by 75 basis points to between 3 and 3.25 per cent last Thursday. The Fed has raised rates five times by a total of 300 basis points since March to tame inflation at four-decade high.
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“The aggressive US interest rate rises have led to capital flowing out of the Hong Kong dollar and into the US dollar for higher yield,” said Bruce Yam, an independent currency-market analyst. “The HKMA has no choice – it will need to continue buying the Hong Kong dollar to defend the peg.”

01:36

US Federal Reserve authorises another big rate hike in bid to curb inflation

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The local currency has been pegged to the US dollar at HK$7.80 since 1983. The HKMA is obliged to intervene to keep the value of the local dollar within the HK$7.75-7.85 band, which was introduced in 2005.

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The Hong Kong stock market has lost US$1.3 trillion of capitalisation this year as global funds retreated. The Hang Seng Index slumped this week to the lowest level since October 2011, bringing the decline this year to 26 per cent and making it among the three worst performing major equity benchmarks worldwide.

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