Due to the recent strengthening of the Hong Kong dollar exchange rate, the Hong Kong Monetary Authority (HKMA) injected HK$6.2 billion into the market on September 1 to maintain the stability of the Hong Kong dollar.
Cheng Ka-wah, Joint Director of Shenyin Wanguo Securities, stated that the Hong Kong dollar exchange rate has reached the HKMA's strong-side convertibility undertaking. This is due to recent inflows of hot money, possibly because Hong Kong is perceived as having relatively lower risk among emerging markets, making it a preferred destination for sovereign wealth fund allocations; it may also be because the Hong Kong stock market is set to see a wave of Initial Public Offerings (IPOs) in September, with capital flowing in to prepare for "new share subscriptions." Additionally, recent fluctuations in the RMB exchange rate may also be one of the reasons for capital inflows into Hong Kong. Cheng Ka-wah believes that the HKMA will not change the Linked Exchange Rate System and that there is no significant pressure to maintain exchange rate stability.
Following the HKMA's capital injection, the aggregate balance of the banking system increased to HK$296.87 billion on September 4 (this Friday). The HKMA stated that this action is in accordance with the Currency Board mechanism to maintain the stability of the Hong Kong dollar. Since short-term Hong Kong Interbank Offered Rates (HIBOR) are close to zero, the increase in the aggregate balance of the banking system should not have a substantial impact on interbank rates. The HKMA will continue to closely monitor market conditions and will maintain the stability of the Hong Kong dollar in accordance with the Currency Board mechanism.