Hong Kong sees no want to vary US dollar-pegged forex system

HONG KONG/SHANGHAI (Reuters) – Hong Kong has no intention and sees no want to vary the system that pegs the town’s forex in a good band to the U.S. greenback and has the flexibility to defend it, the chief government of Hong Kong’s de facto central financial institution stated on Thursday.

Eddie Yue made the remarks amid current power within the Hong Kong greenback, which surged to a 3-1/2 12 months excessive in opposition to the U.S. forex final week, not removed from testing the robust finish of the system’s buying and selling band.

Beneath Hong Kong’s Linked Change Charge System (LERS), the monetary hub’s forex is confined to a spread between 7.75 and seven.85 to the buck, and the Hong Kong Financial Authority (HKMA) is dedicated to intervening to keep up the band.

“Regardless of the current curiosity in LERS and even hypothesis concerning potential geopolitical shocks, the Hong Kong greenback market has continued to function easily in accordance with the design of the LERS,” Yue stated in an announcement posted on HKMA’s web site.

“And let me reiterate, we have now no intention and we see no want to vary the LERS.”

The monetary hub has sizeable overseas reserves of over $420 billion, equal to about 1.7 occasions its financial base, which Yue stated meant “guaranteeing 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 corporations’ rising dividend funds contributed to the tight liquidity in Hong Kong and underpinned the forex, merchants and analysts stated.

Yue stated the HKMA was paying shut consideration to discussions concerning the change charge 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, change charge stability is essential for Hong Kong,” Yue stated, dismissing the view {that a} strengthening Hong Kong greenback alongside the buck would hinder the town’s financial restoration.

Analysts at Barclays (LON:BARC) count on the Hong Kong greenback to remain near 7.75 per greenback in January, however search for it to weaken subsequently.

“We expect international components are more likely to preserve sentiment subdued and assist USD/HKD, particularly after the constructive impulse from dividend payouts by HK-listed companies and (as) IPO exercise fades,” they stated in a be aware printed this week.

“The onshore shopping for of Hong Kong shares could proceed on account of lack of higher funding alternate options, however it could want extra overseas individuals to purchase Hong Kong shares for HKD demand to be lifted extra durably.”