HKMA Keeps Cool As Currency Touches Band Limit

Hong Kong's de facto central bank said it would not necessarily step into the currency market to support the local dollar despite it touching the bottom end of its trading band on Thursday.

As trading began in Asia, Hong Kong's dollar fell to HK$7.85 against the US dollar – the lower limit of its permitted HK$7.75-7.85 band – for the first time since the range was introduced in 2005.

The Hong Kong Monetary Authority said it is required to buy the local currency at HK$7.85 to US$1 under the city's Linked Exchange Rate System if such requests were made by banks.

But the authority added that this practice, known as the weak-side Convertibility Undertaking, will not be automatically triggered.

"So long as other banks are willing to buy HKD at that level, the interbank market will continue to buy and sell HKD at 7.85," the HKMA said.

The dollar slump comes against a backdrop of rising trade tensions between China and the United States, the world's biggest economies and key drivers of global growth.

The HKMA intervened in the foreign exchange market in 2008, buying billions of dollars to maintain the local currency's peg to the greenback.

During the 1997-1998 Asian financial crisis several Asian currencies were de-pegged under severe pressure from speculators, but Hong Kong maintained the link despite having to raise interest rates to spectacular levels. (AFP)