21 10 2012

Hong Kong defends its currency

Saturday 20/10/12 Hong Kong NKMA for the first time since December 2009, had an intervention to stop the strengthening of the dollar against the U.S. dollar. Inflow of speculative capital into the region, caused by ultra-soft monetary policy in the U.S. and Europe, forced the authorities to sell its currency by more than half a billion dollars.

Management of currency of Hong Kong (HKMA), plays the role of the central bank of the country, sold in the foreign exchange market 4,673,250,000 HK $ 7.75 at the rate that the Hong Kong dollar to the U.S. dollar is 603 million U.S. dollars. This is the first currency intervention undertaken by the authorities in Hong Kong in December 2009. During the crisis of 2008-2010 HKMA regularly sold the currency to stop its strengthening caused by the flight of investors into safe harbor in Hong Kong.

Hong Kong dollar pegged to the U.S. at the rate of 7.8 in 1983. In 2005, possible currency depreciation was limited 7.85 Hong Kong dollars, and a ceiling capacity was fixed at 7.75. In recent weeks, the Hong Kong currency is trading at 7.76 to the U.S. dollar.

"The recent increase in demand for local currency associated with less stress on the European market, the weakness of the U.S. dollar and lower interest rates in the U.S.A. This led to capital inflows into the currency and stock markets of the region, "- said a source in the HKMA.

Hong Kong thus joined the list of economies that are trying to stop the strengthening of their currencies. Brazil's finance minister, who in the past, one of the first announced the outbreak of currency wars, in October, called the policy of the central banks of developed countries selfish. The Swiss National Bank since last year forced to spend foreign exchange intervention to stop the strengthening of the franc. Ministry of Finance of Japan four times in the last two years made extensive yen sales. Analysts also suspect of foreign exchange interventions of the Central Bank of South Korea.

Experts note that the inflow of capital in Hong Kong is also connected with the mainland. "Judging by the fact that the Chinese economy has stabilized, investors are to restore it ... funds from Europe and the U.S. are flocking to Hong Kong to buy stocks associated with China" - quoted by Bloomberg DBS Bank analyst Chris Leung. China's currency strengthened on October 18 to a maximum of 19 values - 6.2446 yuan per U.S. dollar.

The influx of speculative capital into Hong Kong will continue and HKMA will again intervene, analysts say. Currently low interest rates in Hong Kong, provoked a rapid growth in the market. This has led to calls to revise the monetary policy. The former head of HKMA Joseph Yam, for example, this year proposed to bind the Hong Kong dollar to a basket of currencies, but while the regulator is in no hurry to change the current system.