HK Monetary Authority weaken currency due to hike in value
On Friday, Hong Kong Monetary Authority (HKMA) sold 4.67 billion HK dollars worth of foreign bonds to reduce the value of the local currency.
The HKMA move came following the HK dollar started trading at 7.7500 to 1 US dollar – the upper limit of its trading band. This is the first time in almost three years, since December 2009, the HKMA had intervened in the foreign exchange market to balance the massive capital in-flow that Hong Kong has received in recent times.
The increase in value of the HK dollar is not unique. Other Asian countries such as Japan, South Korea and Singapore have also seen their currency rise in value. This is primarily due to the Quantitative Easing (QE) programme in the United States and the continuing European debt crisis, as individuals and institutional investors are looking for safe havens to invest their money.
"The recent increase in demand for the local currency is related to a less strained European market, weakness in the USD and declining US interest rates, which have prompted capital inflows into currency and equity markets in the region," an HKMA spokesman said in a statement.
Except for Singapore, almost all other central banks including the Bank of Japan and Bank of Korea have stepped in to reduce the value of their currencies. Hong Kong’s position is a bit different from the others as the city’s interest rates are aligned to that of the United States.
Hong Kong authorities do not want cheap money flooding into the property markets and push already high prices even higher. They are worried about a property bubble and a subsequent crash.