HONG KONG/SHANGHAI (Reuters) – Hong Kong has no intention and sees no want to alter the system that pegs the town’s foreign money in a decent band to the U.S. greenback and has the flexibility to defend it, the chief govt of Hong Kong’s de facto central financial institution mentioned on Thursday.
Eddie Yue made the remarks amid latest energy within the Hong Kong greenback, which surged to a 3-1/2 12 months excessive towards the U.S. foreign money final week, not removed from testing the robust finish of the system’s buying and selling band.
Beneath Hong Kong’s Linked Trade Fee System (LERS), the monetary hub’s foreign money is confined to a variety between 7.75 and seven.85 to the dollar, and the Hong Kong Financial Authority (HKMA) is dedicated to intervening to take care of the band.
“Regardless of the latest curiosity in LERS and even hypothesis relating to potential geopolitical shocks, the Hong Kong greenback market has continued to function easily in accordance with the design of the LERS,” Yue mentioned in an announcement posted on HKMA’s web site.
“And let me reiterate, we now have no intention and we see no want to alter the LERS.”
The monetary hub has sizeable international reserves of over $420 billion, equal to about 1.7 occasions its financial base, which Yue mentioned meant “making certain the sleek functioning of the LERS always”.
A string of things, together with seasonal funding shortages, shopping for by mainland Chinese language buyers and listed firms’ growing dividend funds contributed to the tight liquidity in Hong Kong and underpinned the foreign money, merchants and analysts mentioned.
Yue mentioned the HKMA was paying shut consideration to discussions in regards to the trade price system, which has weathered quite a few financial cycles and a number of monetary crises.
“As a small, open economic system and main worldwide monetary centre, trade price stability is essential for Hong Kong,” Yue mentioned, dismissing the view {that a} strengthening Hong Kong greenback alongside the dollar would hinder the town’s financial restoration.
Analysts at Barclays (LON:) count on the Hong Kong greenback to remain near 7.75 per greenback in January, however search for it to weaken subsequently.
“We expect world components are prone to preserve sentiment subdued and help , particularly after the constructive impulse from dividend payouts by HK-listed corporations and (as) IPO exercise fades,” they mentioned in a be aware revealed this week.
“The onshore shopping for of Hong Kong shares could proceed attributable to lack of higher funding options, however it will want extra international individuals to purchase Hong Kong shares for HKD demand to be lifted extra durably.”