The Hong Kong Monetary Authority (HKMA) has stepped into the financial markets for the first time since 2023 to support the weak local dollar, in an effort to thwart currency arbitrageurs who engage in so-called carry trades.
The city’s de facto central bank sold US$1.2 billion worth of US dollars to buy Hong Kong currency at HK$7.85 per US dollar, according to a statement on Thursday.
The action came after the local currency hit the weak end of its trading band at HK$7.85. The Hong Kong currency’s peg with the US dollar has been in place since 1983. In an initiative launched in 2005, the HKMA intervenes to maintain the exchange rate within the trading band of HK$7.75 to HK$7.85 per US dollar.
“Market demand for [the Hong Kong dollar] declined recently due to … the peaking of the stock dividend payout season, the currency conversion of Hong Kong dollar proceeds from recent IPOs or bond issuances by non-local companies for repatriation, as well as the wrapping up of the seasonal half-year-end funding preparation,” the HKMA’s chief executive Eddie Yue Wai-man said in a statement. “These factors collectively led to the triggering of the weak-side” of the local currency’s peg, he said.
After settlement on Friday, the intervention is expected to decrease the HKMA’s aggregated balance – a measure of the Hong Kong banking sector’s liquidity – by HK$9.42 billion (US$1.2 billion) to HK$164.1 billion.