Hong Kong c bank intervenes again to defend currency peg

HONG KONG: The Hong Kong Monetary Authority on Monday intervened in the foreign exchange market for the third time in eight days, buying 7.75 billion Hong Kong dollars worth (994.1 million US) of US dollars.

The city's de facto central bank said it bought US dollars to maintain the local currency's peg to the greenback amid the global financial crisis.

"There is a very strong demand for Hong Kong dollars," a spokeswoman said. "Taking into account the strong precautionary demand for liquidity in the market, the HKMA operates within the convertibility zone, purchasing US dollars against HK dollars," she said.

The aggregate balance is projected to increase by 7.75 billion dollars to 23.71 billion on October 29 following the injection, the spokeswoman said.

But the spokeswoman maintained that the exchange rate of Hong Kong dollars remains stable. The authority bought 3.88 billion dollars worth of US dollars last Thursday to ensure there was sufficient liquidity in the interbank market. It also bought 4.0 billion Hong Kong dollars worth of US dollars last Monday.

Under Hong Kong's currency system, the HKMA is committed to defending the peg of 7.80 dollars to the US dollar, but it allows the local currency to move within the 7.75-7.85 Hong Kong dollar range.

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