The Hong Kong Monetary Authority might intervene if the local currency's weakness persists beyond the half-year closing, as a record interest rate gap with the US dollar prompted carry trades, according to its chief executive Eddie Yue Wai-man.
While acknowledging that the recent low Hong Kong dollar interest rates – which were driven by consistent capital inflows from a strong stock and initial public offering market – are beneficial for the city, Yue also said carry trades have pushed the local currency to the weak end of the 7.75-7.85 per US dollar trading band, warning that the de facto central bank may step in to defend the peg system by selling the greenback.
The Hong Kong interbank offered rates would eventually normalize following the intervention, Yue said, while emphasizing that there is no plan to change the peg system that has been providing stability to the city's financial system.
Yue stressed the importance of resilience amid current uncertainties, noting that Hong Kong's strong foreign exchange reserves and high liquidity serve as critical buffers. He also highlighted opportunities for the city, particularly as international investors diversify their asset allocations, and how Asia benefits from this shift.
STAFF REPORTER
