HONG KONG – The Hong Kong Monetary Authority (HKMA) raised its main policy rate on Thursday, following the US Federal Reserve’s move, even as weakness in its pegged currency forced the de facto central bank to deplete banking system cash to 15-year lows.
Hong Kong’s monetary policy moves in lock-step with the United States as the city’s currency is pegged to the greenback in a tight range of 7.75-7.85 per dollar.
The HKMA lifted the base rate it charges on an overnight discount window by 25 basis points to 5.50 percent, its highest since January 2008, hours after the Fed moved its target rate to a 5 percent-5.25 percent range.
“Rate hikes in the US will not affect the financial and monetary stability of Hong Kong,” Eddie Yue, Chief Executive of the HKMA, told reporters.
“The market has continued to operate in a smooth and orderly manner and the total deposits in the banking system in Hong Kong have also remained stable.”
Yet the move came alongside another round of intervention by the HKMA to defend the Hong Kong dollar bumping into the weakest end of the peg at 7.85.
The HKMA bought HK$4.671 billion ($595.1 million) from the market in New York trading hours, adding to the $37.5 billion worth of Hong Kong dollars it has soaked up through 49 rounds of interventions since the Fed began hiking interest rates in March 2022.
The aggregate balance – a key gauge of cash balances in the banking system – will decrease to HK$44.527 billion on May 5, an HKMA spokesperson said. It has been below 2020 levels since late April, and is now at the lowest levels since 2008.
Persistent intervention by the HKMA has failed to put a floor under the HK dollar and interbank rates, as investment inflows from mainland China and a weak domestic economy have sapped loan demand. – Reuters
