HKMA sells US$3.24 billion to defend Hong Kong currency peg from capital outflow ahead of expected US interest rate rise

The de facto central bank stepped into the currency market to defend the local dollar against the weakening effects of capital outflow

Investment banks including Goldman Sachs and JPMorgan see the Fed raising interest rates by 75 basis points on Thursday

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The HKMA bought a total of HK$4.396 billion and sold US$560 million on Tuesday to bolster the exchange rate. Photo: Bloomberg

Published: 7:37pm, 14 Jun 2022Updated: 6:08pm, 15 Jun 2022

Hong Kong’s de facto central bank stepped into the currency market three times within 24 hours, selling US$$3.24 billion ahead of an expected US interest rate rise on Thursday, to defend the local dollar against the weakening effects of capital outflow.

The Hong Kong Monetary Authority (HKMA) bought HK$11.78 billion of the city’s currency, and sold US$1.5 billion of US dollars on Wednesday evening to bolster the exchange rate and return the local dollar to its trading band, after it briefly weakened to HK$7.8500 per US dollar.

The band, in place since 2005, allows the Hong Kong dollar to fluctuate between HK$7.7500 and HK$7.8500 against the American currency.

The intervention was the HKMA’s largest in eight such actions this year. The de facto central bank sold a combined US$5.48 billion and bought HK$43.01 billion of currencies this year.

Several American investment banks including Goldman Sachs and JPMorgan have revised their rate increase forecasts from 50 basis points to 75 basis points this week after US Labor Department data for May showed consumer price inflation had accelerated to 8.6 per cent, a 40-year high.