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Hong Kong intervenes to strengthen currency for first time since 2019 

 May 2, 2022

The Central Bank of Hong Kong has intervened to strengthen the city’s currency and protect its peg to the US dollar for the first time since 2019, threatening to raise lending costs while the financial center’s economy still recoils from the severe restrictions of Cubid-19.

The Hong Kong Monetary Authority announced on Thursday that it had bought nearly Hong Kong $ 1.6 billion ($ 202 million) to strengthen the Hong Kong dollar after falling to the lower limit of Hong Kong $ 7.85 against the dollar during trading hours in New York on Wednesday.

Hong Kong officials expected the currency to test the weak end of its trading strip, with HKMA chief Eddie Yueh this month noting that the recent weakening of the exchange rate is a result of higher US interest rates, leading to a “capital flow”. From the city. “

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Maintain Peg, which was established in 1983 and has succeeded Multiple financial and political crises, the HKMA is required to effectively import US monetary policy.

The central bank buys Hong Kong dollars as outgoing currents push the currency to the weak end of the trading strip. This leaves local banks with less money for short-term loans, and ultimately raises local interest rates, and encourages to buy and hold assets in Hong Kong dollars. The opposite is done when the exchange rate reaches the band’s strong end of HK $ 7.75.

But analysts have said that abundant liquidity in Hong Kong’s interbank market has prevented domestic interest rates from rising and adjusting perfectly to those in the US, prompting investors looking for higher returns to Beyond US dollar assets. Despite this, few expected the peg to deal with any imminent threat.

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“The peg will last,” said Calvin Lau, a senior China economist at Standard Chartered. “While there is some concern about capital outflows and [Hong Kong dollar] Assets are not functioning well, ultimately the main reason for the currency weakness we have seen. . . Is the interest rate differential. “

The case of global investors holding Hong Kong dollar-denominated assets has weakened over the past 12 months. Chinese technology groups that are a growing share of the city’s stock market Were injured By a regulatory attack from Beijing.

Prices in Hong Kong’s infamous expensive real estate market did as well Hit under pressure Of the severe Covid-19 constraints that caused the economy to contract sharply during the first quarter. More than 150,000 residents have left the city in recent months.

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When Hong Kong’s interest rates finally rise, they are likely to weigh on any emerging economic recovery nurtured by recent moves. Relieve Cubid-19 restrictions. The city’s significant business ties with China are also expected to drag growth as the strengthening of lock-in in cities including Shanghai has provoked economic turmoil on the continent.

Lau, at StanChart, said the rise in interest rates would be “certainly uncomfortable” for Hong Kong’s weakened economy. But he added that “the biggest counter-spirit is Cubid’s restrictions… These are still the main thing that is hindering Hong Kong from recovering faster.”

Hong Kong intervenes to strengthen currency for first time since 2019 Source link Hong Kong intervenes to strengthen currency for first time since 2019

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