HKMA’s Deputy Chief: Rates in Hong Kong are Likely to Rise Gradually, Incrementally

The Hong Kong Monetary Authority (HKMA) sold US$104 million Thursday evening after the Hong Kong dollar hits its 35-year low at 7.8500 per US dollar.

The aggregate balance will be reduced by HK$816 million to HK$178, 961 million on April 16, said the de facto central bank in a statement.

“This is the first time that the weak-side CU of 7.85 is triggered after the HKMA shifted the weak-side CU to that level in 2005, as part of the ‘Three Refinements’ to the operation of the Linked Exchange Rate System (LERS),” said Norman Chan, Chief Executive of the HKMA.

He reiterated that the HKMA will buy Hong Kong dollar (HKD) and sell USD at 7.85 level to ensure that the HKD exchange rate will not weaken beyond 7.8500, while such operations are normal and in accordance with the design of the LERS.

Interest rates are likely to rise incrementally and gradually, “said the authority’s deputy chief executive Howard Lee this morning. “As Hong Kong’s banking system has ample liquidity, we can cope with capital outflows, which are within expectation. 

The HKMA would only intervene to buy Hong Kong dollars upon requests from banks, according to a spokesperson of the authority.

The weakening of the Hong Kong dollar to 7.85 would not necessarily mean the authority's weak-side convertibility has been, or will be, triggered because as long as banks are willing the buy the local currency at 7.85, the interbank market would continue to buy and sell the currency at that level, the spokesperson explained.