The Hong Kong Monetary Authority (HKMA) intervened in the foreign exchange market on Tuesday, for the sixth time since late June, purchasing the local currency and raising overnight lending costs in an effort to deter traders seeking to profit from the city’s interest rate differential with the US dollar.
The city’s de facto central bank said on Tuesday that it sold US$1.89 billion and bought HK$14.83 billion at HK$7.85 per US dollar during New York trading hours on Monday. The authority added that these operations would reduce the aggregate balance – a gauge of banking sector liquidity – to HK$86.43 billion on July 17.
The local currency traded at HK$7.8496 after the intervention. It was the sixth time that the HKMA intervened in the market to defend the currency peg since June 26, buying a total of HK$86.93 billion and selling US$11.11 billion.
Hong Kong’s currency has been pegged to the US dollar since 1983, initially setting the rate at HK$7.80 per US dollar. In 2005, the HKMA established a narrow trading band, allowing the Hong Kong dollar to fluctuate between HK$7.75 and HK$7.85. Under the linked exchange rate system, the HKMA is required to intervene whenever necessary to maintain the currency within this range.
In early May, the HKMA intervened in the foreign exchange market by buying US dollars and selling Hong Kong dollars, as the local currency strengthened, driven by gains in regional currencies and a shift away from US dollar assets.
