Chan defends monetary intervention

Secretary for Financial Services & the Treasury Prof KC Chan defended the two government moves to weaken the Hong Kong dollar in the space of just three days.

He said it is normal for the Monetary Authority to intervene in the foreign exchange market to stabilise the Hong Kong dollar. He noted that the authority’s action is in line with the mechanism to enable the stability of Hong Kong dollar, adding similar action has been taken before.

Hong Kong first came to defense of its embattled currency on Oct. 21, selling HK$1.25 billion to deter the currency’s further appreciation. It repeated the exercise on Oct. 23 when it sold $603 million worth of Hong Kong dollars in the foreign exchange market to defend the currency.

In both instances, the Monetary Authority sold Hong Kong dollars after it hit HK$7.75 per U.S. dollar in Hong Kong and New York, the upper limit of its peg to the U.S. dollar. The central bank fixed the currency in 1983, and in 2005 committed to keep the exchange rate between HK$7.75 and HK$7.85.

HKMA said its latest intervention will result in a corresponding expansion in the banking system’s aggregate balance to HK$163 billion on Oct. 25. The pressure on the peg arose from capital inflows into the region.