Financial system remains steady despite ‘shocks’ of coronavirus, protests, says Hong Kong Monetary Authority, even as currency takes a tumble

Hong Kong’s currency has slipped from a recent three-year high as the deadly coronavirus outbreak unfolded, but the city’s de facto central bank insists the financial system remains stable despite the epidemic’s heavy toll on the economy.

The Hong Kong dollar has weakened by 0.3 per cent to 7.783 per US dollar since February 5, when it reached 7.763 – its strongest level since March 2017.

The local currency moved from the strong end towards the centre of its narrow trading band of 7.75 to 7.85 per US dollar, as a lack of large initial public offerings amid the Covid-19 outbreak led to a higher interbank liquidity level – banks were left with an unusually high amount of short-term capital to lend one another.

But the city’s financial system remains stable even though the coronavirus outbreak has caused heavy damage to some industries, the head of the city’s de facto central bank said on Monday.

“Over the past year, our economy has been under a lot of pressure as a result of the US-China trade war, local social unrest and the coronavirus outbreak,” said Eddie Yue Wai-man, chief executive of the Hong Kong Monetary Authority's (HKMA), during a meeting with the Legislative Council.

“But our money market has been operating in an orderly manner, with the exchange rate and the Hibor [Hong Kong interbank offered rate] remaining stable. The banking system has been operating normally and is capable of resisting shocks.”

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No sign of capital outflow has been observed, according to Yue, as Hong Kong’s total deposits grew 2.9 per cent in 2019 from the year before and remained steady in the first two months of this year.