Need To Defend HKD May Come More Often: HKMA

The Monetary Authority said on Thursday that it expects the Hong Kong dollar to touch the weak end of its narrow trading band with the greenback more often than usual this year, as the US Federal Reserve hikes rates to tame inflation.

Under a linked exchange rate system with the US dollar, the authority will defend the Hong Kong dollar by buying or selling it if the local currency breaches either side of its trading range of HK$7.75 - 7.85 to the greenback.

A deputy chief executive of the authority, Edmond Lau, said he believes the Fed may raise rates more aggressively and at a faster pace compared to what it did between 2016 and 2018.

Speaking at a media session, Lau also said he expects that interbank lending rates here will not track the pace of US rate increases closely, as there is an abundant liquidity of HK$330 billion in the local interbank markets.

He said capital will flow from the Hong Kong dollar to the greenback when local rates fall further behind US interest rates.

He noted that smaller stock trading volume and fundraising activities due to weaker market sentiment could also lead to lower demand for the Hong Kong dollar.

But he added that the US-dollar peg system here is capable of handling an expected outflow to the greenback.

Officials from the authority also urged prospective property buyers to be vigilant against medium-to-long term risks, warning of an apparent upward trend for borrowing costs here even if local rates do not rise in tandem with the US.