HKMA intervenes in the currency market for the fourth time this year ahead of expected US rate rise next month
- The HKMA sold US$485 million and bought the equivalent HK$3.8 billion to defend the peg
- More intervention expected as over 70 per cent of traders see a 25 basis point rate rise next month by the US Federal Reserve
The Hong Kong Monetary Authority (HKMA) intervened in the foreign-exchange market on Tuesday morning to defend the local currency, which is under pressure from capital outflows. It is the fourth such intervention this year and comes amid expectations of a rate rise by the US Federal Reserve next month.
Authorities bought HK$3.8 billion and sold an equivalent amount of US currency at US$485 million to keep the value of the local dollar within its trading band. It had weakened to HK$7.85 per dollar over the Easter holiday.
The intervention is the second such instance this week and the fourth this year. The HKMA has already bought a total of HK$30 billion to support the local currency this year. It bought a total of HK$242.08 billion in 41 market interventions in 2022.
Hong Kong pegged its currency to the US dollar in 1983, and in 2005 allowed its value to fluctuate in a narrow range of 7.75-7.85 to the US dollar in the open market under the city’s linked exchange rate system. HKMA buys and sells the currency to maintain the band.
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“US officials have indicated that there is likely to be another 25 basis point rate rise at the next meeting [of the Fed] as inflation remains high,”said Bruce Yam, an independent currency-market analyst. “The US banking crisis has now turned stable which will support more rate rises in the US.”