This week, the Hong Kong Monetary Authority bought Hong Kong dollars 4 times to support the Hong Kong dollar exchange rate. Specifically, on June 14, the Hong Kong Monetary Authority bought 4.396 billion Hong Kong dollars; on June 15, after buying 4.396 billion Hong Kong dollars earlier, it again Buy 9.255 billion Hong Kong dollars; on June 16, buy 13.824 billion Hong Kong dollars. A total of HK$318.71 was bought four times.
On May 12, the Hong Kong dollar hit the weak-side exchange guarantee of 7.85, and the Hong Kong Monetary Authority announced that it would buy 1.586 billion Hong Kong dollars in the market. Up to now, the Hong Kong Monetary Authority has accumulated 9 operations, and the purchase amount has reached 56.835 billion Hong Kong dollars.
Hong Kong has implemented the linked exchange rate system since October 17, 1983. Through a rigorous, stable and transparent currency board system, the exchange rate of the Hong Kong dollar has been kept stable within the range of 7.75 to 7.85 Hong Kong dollars per US dollar.
In addition, the Hong Kong Monetary Authority followed the Federal Reserve to raise the base interest rate by 75 basis points to 2% on June 16. The Hong Kong Monetary Authority stated that since the United States raised the target range of the federal funds rate by 75 basis points on June 15 (US time), the current lower limit of the target range of the US federal funds rate plus 50 basis points is 2%, while the overnight and 1-month target range is 2%. The average of the 5-day moving average of HIBOR is 0.2%, so according to the preset formula, the base rate is raised to 2%.
After the Federal Reserve announced a 75 basis point interest rate hike, Hong Kong Monetary Authority President Yu Weiwen said that despite successive interest rate hikes in the United States, Hong Kong’s monetary and financial markets continued to remain stable, the foreign exchange market was operating smoothly and orderly, and market liquidity was abundant. As the US raises interest rates again, the Hong Kong-US interest rate differential will widen again. Under the linked exchange rate system, when the interest rate spread widens to a considerable extent, there will naturally be enough incentives for market participants to carry out carry trades, driving funds to gradually flow from the Hong Kong dollar to the US dollar. Therefore, it is normal for the Hong Kong dollar exchange rate to be weak.
Yu Weiwen further stated that according to the design of the linked exchange rate system, when the Hong Kong dollar exchange rate triggers the 7.85 weak-side convertibility guarantee, the HKMA will buy the Hong Kong dollar and sell the US dollar, funds will flow out of the Hong Kong dollar system, and the Hong Kong dollar interest rate will gradually increase, which will help offset the incentives for carry trades. In the end, the Hong Kong dollar was stabilized in the range of 7.75 to 7.85, just like the operation of the HKMA in May and this week to buy the Hong Kong dollar and sell the US dollar under the weak-side convertibility guarantee mechanism under the linked exchange rate system. The operation is in line with the design and expectations of the linked exchange rate system.
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