Hong Kong Monetary Authority steps in to defend currency again as spectre of higher mortgages looms
The withdrawal of liquidity resulting from de-facto central bank’s intervention brings a key property-loan interest rate closer to a tipping point that would leave homeowners with higher mortgage payments.
Hong Kong’s de facto central bank continued to intervene in the currency market, bringing the week’s spending to HK$16.76 billion (US$2.1 billion) of its US$432 billion in foreign reserves, as it defends the local dollar.
The withdrawal of banking liquidity resulting from the Hong Kong Monetary Authority’s intervention brings a key property-loan interest rate closer to a tipping point that would leave homeowners with higher mortgage payments.
On Wednesday, the HKMA bought HK$14.6 billion as the Hong Kong dollar fell to 7.8500 per US dollar, the weak end of its trading band. The Hong Kong dollar was trading at 7.8496 against the US dollar on Thursday evening, still close to the lower limit of its permitted trading range of 7.75 to 7.85 per dollar.
A combination of factors in recent days has driven capital out of Hong Kong, including Turkey’s currency crisis and the resumption of a so-called arbitrage trade where investors buy the higher-yielding US dollar and sell lower-yielding local currencies.
The HKMA is ready to provide additional liquidity by adjusting the volume of exchange fund bills – currently about HK$1 trillion – it issues if needed, to cope with outflows, said Norman Chan, its chief executive, in a statement on Thursday.
Over the years, the HKMA has issued exchange fund bills to investors in an effort to drain excessive banking funds during periods of strong capital flows into the city. In the same vein, the HKMA can let the exchange fund bills mature without rolling them over, resulting in an injection of liquidity back into the interbank market.