Hong Kong peg defence at RM2.8b

By BLOOMBERG

HONG KONG • Hong Kong’s de facto central bank intervened to defend the local currency’s peg against the dollar for the second time in days.

The Hong Kong Monetary Authority (HKMA) bought HK$3.93 billion (RM1.96 billion) of local currency, according to its page on Bloomberg, after the Hong Kong dollar fell to the weak end of its HK$7.75-HK$7.85 trading band. It also purchased US$192 million (RM787.2 million) worth last Saturday. The move will reduce the aggregate balance, a measure of interbank liquidity, to US$70.9 billion on March 14.

Continued intervention may drive up local borrowing costs, which have lagged US rates despite the currency peg. That would intensify pressure on home values in the world’s most expensive property market, and weigh on the city’s economy. The aggregate balance stood at about HK$180 billion just 11 months ago.

The Hong Kong dollar was 7.8499 per greenback as of 8:19am local time yesterday. The city’s one-month interbank borrowing costs, known as Hibor, have risen eight basis points to 1.43% this week, the highest since Jan 9, and up from a low of 0.91% last month. The equivalent US Libor is at 2.5%. The gap makes it profitable to short the Hong Kong dollar, which has been near the weak end of its band for weeks.

HKMA deputy CEO Howard Lee last Saturday attributed the gap to abundant liquidity in the currency market, weak demand for loans and a lack of large-scale initial public offerings in Hong Kong. — Bloomberg