By Clarence Leong
The head of the Hong Kong Monetary Authority, the city's de facto central bank, on Friday defended the local currency's peg to the greenback and said there is no intention to change it.
As of Thursday, the HKMA has bought more than 170 billion Hong Kong dollars (US$21.66 billion) since May in order to stabilize the currency pair within the permitted range of 7.75 to 7.85 Hong Kong dollars per U.S. dollar, Eddie Yue, HKMA's chief executive, said in a blog post. The HKMA sells U.S. dollars if the local currency gets too weak or buys them if the Hong Kong dollar gets too strong.
The currency peg mechanism, known as Linked Exchange Rate System, or LERS, has been in place for almost 40 years and is "the cornerstone of Hong Kong's monetary and financial stability," Mr. Yue said, adding that the public shouldn't be misled by recent speculation about the mechanism.
The U.S. Federal Reserve's aggressive interest-rate increases to fight decades-high inflation has increased the appeal of U.S. dollar-denominated fixed-income assets and pressured Hong Kong's and other Asian countries' currencies.
"As the U.S. will continue to raise interest rates, we might see more reports about the HKMA buying Hong Kong dollars" going forward, Mr. Yue said. "All these are within the design and expectations of the LERS. There is no need to worry."
The city's massive foreign-currency reserves totaling US$440 billion provide a solid foundation to the peg, Mr. Yue said. "The HKMA has the capability and resolve to maintain the LERS and Hong Kong's monetary and financial stability. Hong Kong has no need and no intention to change the LERS," he added.
Nevertheless, given market expectations that the current U.S. rate-hike cycle will be quicker and more aggressive than the last cycle in 2015-18, the HKD exchange rate may hit the weaker end of the range more frequently and at a larger scale, prompting HKMA intervention, Mr. Yue said.
Write to Clarence Leong at clarence.leong@wsj.com
(END) Dow Jones Newswires
07-22-22 0629ET
