HKMA head Norman Chan vows to defend Hong Kong peg with HK$3.3tn war chest
HKMA chief pledges ‘ability and sufficient reserves’ to defend 32-year-old Hong Kong dollar peg
The head of the Hong Kong Monetary Authority has vowed to defend the 32-year-old Hong Kong dollar peg even though it is facing up to US$130 billion of capital outflows due to last month’s US interest rate rise and the weak local economy.
“We have no plan, no intention, and have no need to change the peg link system which has served Hong Kong financial markets well over the past three decades,” HKMA chief executive Norman Chan Tak-lam said on the sidelines of the Asian Financial Forum meeting in Hong Kong yesterday.
“The HKMA is capable and is determined to keep the peg going on as the system keeps the Hong Kong dollar stable, which is the cornerstone of our economy.”
BLOG: China Markets Live - Shanghai stocks reverse higher at noon break; Hong Kong remains lower
The Hong Kong dollar fell to 7.80 against the US dollar at one stage Monday morning before bouncing back to 7.79 in the afternoon, its lowest level in four years, after falling by 0.36 per cent against the greenback last week – the most in 12 years.
Chan said capital was flowing out of Hong Kong, driving the currency lower.
“It is natural to see capital outflow from Hong Kong after the US increased its interest rate in December,” he said. “It is also because the Hong Kong economy is weak and the stock market has fallen.
“The HKMA has the ability and sufficient reserves to defend the peg even if some of the US$130 billion capital which has flowed into the Hong Kong markets in recent years leaves,” Chan said, added that outflows would force local interests rates higher in a gradual process.