Since the U.S. central bank began raising rates in March, Hong Kong authorities have continuously intervened in the forex market to stop its currency from sliding below its peg to the U.S. dollar.
According to Reuters, the Hong Kong Monetary Authority (HKMA) has conducted 40 rounds of intervention since March, buying Hong Kong dollars worth about $30.7 billion from the market.
In the latest move, the HKMA entered the market on November 5 (New York session) to buy nearly HK$3.1 billion ($390 million).
The move will bring the balance of Hong Kong’s banking system to nearly HK$97 billion.
This means the aggregate balance – the key gauge of cash in the city’s banking system, falls below HK$100 billion ($12.7 billion) for the first time since June 2020.
China Watch citing Hong Kong banker Wu Mingde said that it is a normal financial operation when the HKMA buys its currency as the Hong Kong dollar is pegged to a tight band from 7.75 to 7.85 versus the U.S. dollar.
He expected Hong Kong’s bank balance to fall to HK$50 billion in December this year as the Federal Reserve continued to raise interest rates.
Wu said that in addition to the decline of the balance of the banking system, the Hong Kong stock market would also fall because it reflects the money outflow.