The weak-side convertibility undertaking may be triggered again, the Hong Kong Monetary Authority warned, after it intervened early Wednesday by selling US dollars for Hong Kong dollars of HK$9.42 billion to defend the local currency’s peg.
HKMA chief executive Eddie Yue Wai-man cautioned the public to carefully manage interest rate and market risks, noting the weak-side convertibility undertaking may be triggered again depending on capital flows and supply-demand dynamics.
Yue said multiple strong-side convertibility triggers in early May brought HK$129.4 billion of inflows, boosting liquidity, pushing down interbank rates, and widening the interest rate gap between the local currency and the US dollar. This fueled carry trade activity selling the local currency to buy US dollars.
He added that market demand for the local currency has recently declined due to the winding down of the stock dividend payout season, repatriation of proceeds from recent initial public offerings and bond issuances by non-local firms, and the conclusion of seasonal half-year-end funding needs.
The Hong Kong dollar touched the weak-side of its trading band at 7.85 per US dollar during New York hours on Wednesday, prompting the HKMA to intervene and sell US dollars for Hong Kong dollars upon the request of banks.
Following the intervention, the banking system’s Aggregate Balance will fall to HK$164.1 billion on June 27. The weak-side was last triggered in May 2023.
STAFF REPORTER
