HK dollar move sparks outflow fears

Top News | Bloomberg and Joyce Chen 17 Apr 2018

The Hong Kong Monetary Authority bought Hong Kong dollars again yesterday to support the weak local currency.

It purchased HK$3.59 billion, which is the fifth time since last week.

The de facto central bank has bought a total of HK$13.25 billion from the foreign exchange market.

But the Hong Kong dollar remains stuck at the weak end of its currency band.

It traded at HK$7.8499 per greenback at 5.31pm local time, near the level that can spur buying by the HKMA.

The weak end of the band was reached on Thursday for the first time since 2005.

The speed of intervention shows outflows are bigger than people had thought, according to China Everbright Bank.

"The pace of HKMA's buying is a bit faster than we expected," said Ngan Kim Man, deputy head of treasury at China Everbright Bank's Hong Kong branch.

Outflows are likely to accelerate as the United States tightens monetary policy, boosting short-end rates in Hong Kong, Ngan said.

Hong Kong interbank rates have lagged behind their US counterparts thanks to an abundance of liquidity - something HKMA tightening may change.

Hong Kong residents "shouldn't expect that the environment of super low interest rates will persist forever," Financial Secretary Paul Chan Mo-po blogged.

Investors "have to consider the possibility of a rise in the borrowing costs, and the impacts of higher interest rates on asset prices and their investments." The government has the capability to deal with large capital outflows, and investors should not be too worried, he said.

Chang Liu, China economist at Capital Economics, wrote: "If the downward pressure on the Hong Kong dollar persists, policymakers are likely to step up its intervention over the coming months.

"A bigger concern is that the rise in market interest rates precipitates a collapse in the property market, which causes a wider problem in the economy, including a slump in consumption and a sharp rise in non-performing loans."

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