Peg easier to protect with low rates

Business | Avery Chen 3 Jul 2020

Hong Kong Monetary Authority chief executive Eddie Yue Wai-man said it is easier for Hong Kong to defend its currency peg to the greenback, thanks to the low-interest rates around the world.

Rasing interest rates is HKMA's most important mechanism if there is a significant capital outflow, with low-interest rates meaning it would only take a 10 to 15 percent premium to bring investment back, he told the Financial Times.

The gap between three-month US and Hong Kong interest rates is around 0.5 percentage points, thanks to the mega secondary listings and quarter-end dividend payments by mainland companies, the report said.

If Hong Kong needs an external source of US dollars to defend the peg, it will turn to the People's Bank of China for help, the newspaper said.

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