Hong Kong Intervenes to Defend Currency Peg for First Time Since May
(Bloomberg) -- Hong Kong intervened to defend its peg to the dollar for the first time in three months after the local currency fell to the weak end of its trading band.
The Hong Kong Monetary Authority bought HK$2.159 billion ($275 million) of local dollars during New York trading hours on Tuesday, according to the de facto central bank’s page on Bloomberg. The last intervention was on May 18. The city’s currency traded at HK$7.8499 as of 7:38 a.m. local time, close to the weak end of its permitted trading range of HK$7.75-7.85.
The widening interest rate gap between Hong Kong and the U.S. has driven carry trades that has led to outflows and weakened the local currency. The intervention also came as Hong Kong unexpectedly posted a quarter-on-quarter economic contraction for the three months ended June.
The HKMA has spent about HK$70 billion this year protecting the currency system, which has the effect of tightening liquidity in a city that’s enjoyed ultra-low borrowing costs as it imports U.S. monetary policy.
Read: Why Hong Kong Central Bank Intervened and Should We Worry
Hong Kong’s interest rates are set to rise. Home loan rates had their biggest jump in five years after major lenders including HSBC Holdings Plc (LON:HSBA). and BOC Hong Kong Holdings Ltd. lifted the cap for mortgages linked to local interbank rates on Aug. 13.