Hong Kong Steps In to Defend Peg for First Time Since August
(Bloomberg) -- Hong Kong’s de facto central bank bought the local dollar for the first time since August after the city’s exchange rate fell to the weak end of its trading band against the greenback.
The Hong Kong Monetary Authority spent HK$1.507 billion ($192 million), according to its page on Bloomberg. A spokesman for the authority in New York declined to comment.
Lower interest rates relative to the greenback have made shorting the Hong Kong dollar a lucrative trade. The HKMA, which needs to buy the currency at 7.85 per dollar to defend the trading band, intervened last year for the first time since 2005.
Continued purchases by the authority would tighten liquidity, which may drive up borrowing costs in the city. The HKMA’s actions last year saw the aggregate balance, a measure of interbank liquidity, shrink by more than half. The balance stood at HK$76.3 billion on Friday.
Read more: Hong Kong Dollar Near Weak End of Band Raises Tightening Risk
“Reserve levels have been built up significantly over the past decade and the HKMA still has an ample amount of reserves to defend the USD/HKD range for now,” said Bipan Rai, head of North American foreign-exchange strategy at Canadian Imperial Bank of Commerce. “It’ll likely be tested a few times, which may see further intervention. But any talk of the peg giving way is an extreme long shot.”
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