Hong Kong central bank intervenes to protect currency peg

The Hong Kong Monetary Authority today intervened in the foreign exchange market, buying 3.88 bn Hong Kong dollars (500 mn) worth of US$ to maintain the local currency's peg to the greenback.  

   
A spokesman for the HKMA, the city's de facto central bank, said there had been increased demand for Hong Kong dollars in recent days.     

"Taking into account market conditions, the HKMA operated within the convertibility zone, purchasing US$ against Hong Kong dollars," he said in a statement.     

The statement said the aggregate balance was projected to increase by 3.88 bn Hong Kong dollars to 17.96 bn as a result of the action.     

Under Hong Kong's currency system, the HKMA is committed to defending the peg of 7.80 dollars to the US$, but it allows the local currency to move within the 7.75-7.85 Hong Kong dollar range.     
At 4:00pm (0800 GMT), the Hong Kong dollar depreciated slightly to 7.7533 to the US$, from a high of 7.7521 at 0600 GMT.

The intervention was announced at around 0630 GMT. Traders said Hong Kong's decision to guarantee all bank deposits until 2010 may have contributed to the move.     

"I won't be surprised if there are more interventions to come," said an unnamed trader at a local bank, according to Dow Jones Newswires.     

He said he saw a large amount of fund inflows as investors sought to take advantage of Hong Kong's full deposit guarantee scheme.     

"Many investors are trying to park their funds in Hong Kong, which is a more stable market amid the volatile global financial situation," the trader said.