Stifles second- consecutive day hike of local currency in Hong Kong
Hitting the Limit: HKMA's Major Intervention
Looks like the Hong Kong Monetary Authority (HKMA) is pulling some serious moves, folks! On Monday, they sold a whopping HK$9.532 billion of local currency and bought USD$1.23 billion at HK$7.75 per US dollar. This news came straight from an HKMA statement.
Going Big Time
When you add up all these actions, the city's aggregate balance - a key indicator of interbank liquidity - will skyrocket to HK$100.841 billion on May 7. That's over double its previous level of HK$46.54 billion!
The Hong Kong dollar has been pegged to the US dollar since 1983, and the current system, in place since 2005, demands the HKMA to intervene and maintain the currency within a narrow band of HK$7.75 to HK$7.85 per US dollar.
Why the sudden move? Well, the Hong Kong dollar had reached the strong end of its peg band at 7.75 per USD, triggering mandatory currency sales under the Linked Exchange Rate System (LERS).
The Wave of Capital Inflows
The interventions took place amid a surge of capital inflows, fueled by heightened investor interest in Hong Kong stocks and continuous southbound buying from mainland Chinese investors via the Stock Connect mechanism.
Fun fact: This isn't the first time the HKMA has implemented such actions, but this time round, they're notably larger, marking the first such actions in over four years! These interventions are all part of the standard LERS operations to keep the exchange rate stable and maintain liquidity in the banking system.
The HKMA's significant interventions on Monday, involving the sale of HK$9.532 billion local currency and purchase of USD$1.23 billion, were a response to the surge of capital inflows in the Hong Kong banking-and-insurance industry. This surge was driven by increased investor interest in Hong Kong stocks and continuous southbound buying from mainland Chinese investors via the Stock Connect mechanism. As a result, the city's aggregate balance, a key indicator of interbank liquidity, will reach a record high of HK$100.841 billion on May 7, more than doubling its previous level. These interventions, part of the standard Linked Exchange Rate System (LERS) operations, are aimed at maintaining the Hong Kong dollar's stability within its pegged band and ensuring liquidity in the financial business sector.
