HKMA injects HK$1.6b into financial system
The Hong Kong Monetary Authority pumped HK$1.55 billion into the banking system yesterday and further moves are expected amid continuous capital inflows.
'The strong Hong Kong dollar is set to persist in the short to medium term,' Eddy Lui Kin-kar, head of treasury at Hong Leong Bank Hong Kong, said. This would prompt the HKMA to inject liquidity into the system again, he said.
The Hong Kong dollar stood at 7.75 against the US dollar at the late session yesterday.
Yesterday's injection followed a HK$3.1 billion infusion during New York trading on Wednesday to prevent the Hong Kong unit from strengthening beyond 7.75 against the US dollar, the upper ceiling of the fixed trading band against the greenback.
The de facto central bank has injected more than HK$46 billion into the system since March 20, increasing the aggregate balance of the banking system to HK$160.79 billion on April 7.
Mr Lui attributed the injection partly to money inflow into Hong Kong recently as many fund managers have been looking for investments on the mainland, and through Hong Kong they can tap mainland growth indirectly.
An HKMA spokesman said: 'According to our market contacts, the recent inflow into Hong Kong dollars may be equity related.'
However, Mr Lui said the volume of the inflow was not very substantial as there was no significant movement in the currency swap market.
Mr Lui expects many commercial banks with substantial US dollar long positions to unwind their positions in the light of the strong Hong Kong currency. 'The weak US dollar is part of the reason,' he said, adding that the United States currency had declined by more than 2 per cent in the past two days.
Alan Luk Ting-lung, head of investment advisory at Hang Seng Bank, agreed that the inflow of capital triggered the HKMA move.
He expected the HKMA to make further injections if the external market became stabilised and prompted more money inflows.
Meanwhile, Hong Kong interbank rates remained soft. One-month and three-month rates stood at 0.32 per cent and 0.9 per cent, respectively.