HONG KONG: The Hong Kong Monetary Authority said on Thursday (Mar 8) it had no immediate plans to issue bills to prop up the local currency, which hit fresh 33-year lows.
Hong Kong's de facto central bank will wait and see if the local dollar weakens to the 7.85 per US dollar level before it steps in, chief executive Norman Chan said in a column published on HKMA's website.
"We do not have plans to issue additional Exchange Fund bills for the time being and hope that market players will not take it wrongly that the HKMA does not want the HKD to weaken," Chan said.
"In fact, with the widening of the spreads between HKD and USD interest rates, we are looking forward to funds flowing from the HKD into the USD, causing the HKD exchange rate to reach 7.85, a level where the HKMA will take action."
In the past, the HKMA has issued additional exchange fund bills to soak up excess cash in money markets, thus putting a floor under interbank rates and the currency.
"The issuance of additional HK$80 billion (US$10.2 billion) worth of Exchange Fund bills by the HKMA last time was solely in response to market demand for highly liquid instruments and had nothing to do with the strengthening or weakening of the HKD."
The authority is confident Hong Kong can deal with future challenges arising from potential asset market volatilities and fund outflows, Chan added.
The Hong Kong dollar fell to a new 33-year low on Thursday, inching closer to the lower end of the monetary authority's targeted trading band, as the interest rate gap between U.S. dollar rates and Hong Kong counterpart widened further.
In late afternoon trade, the Hong Kong dollar fell to 7.8405 to the US dollar.
The HKMA has pegged the local currency at 7.8 to the US dollar since 1983, but it allows it to trade between 7.75 and 7.85.
As the currency approaches the lower end of its trading band, expectations are growing the central bank will announce a hefty issuance of bills to drain the excess liquidity out of its money markets.