Standard Chartered Bank projects that the Hong Kong Monetary Authority may need to continue intervening in the foreign exchange market throughout the second half of the year to counter persistent weakness of local currency.
The bank forecasts that the Hong Kong dollar against the greenback will likely hover near the weak-side convertibility guarantee level of 7.85 over the next three to six months. This sustained pressure is expected to trigger further HKMA actions to drain liquidity and reduce the banking system's aggregate balance – a process typically lasting three to six months.
Historical patterns suggest a lasting equilibrium is only achieved when the aggregate balance falls to HK$50-60 billion, Standard Chartered estimates.
The balance lowered to HK$114.5 billion after the HKMA bought HK$29.6 billion worth of local currency in two interventions on Thursday last week.
The bank cautioned that this liquidity withdrawal cycle could extend beyond historical norms due to weak growth in Hong Kong dollar-denominated assets.
Additionally, Hong Kong's loan-to-deposit ratio – already at a 16-year low – may decline further, exacerbating the liquidity surplus and prolonging the need for HKMA intervention.
STAFF REPORTER
