(1888PressRelease)
May 09, 2009 - Funds are streaming into Hong Kong's financial markets on growing signs China will lead the territory out of the economic downturn and this has pushed the pegged Hong Kong dollar to the top of its trading band.
Under Hong Kong's currency peg, the Hong Kong Monetary Authority is obliged to intervene if the Hong Kong dollar, which can trade between 7.7500 and 7.8500 to the U.S. dollar, hits the upper or lower limit of its trading band.
On Thursday, the HKMA confirmed it injected HK$4.263 billion (US$550 million) into the money market lifting the aggregate balance, sum of balances on clearing accounts maintained by banks with the HKMA, to a record HK$211.033 billion by May 11.
The liquidity injection in the local market sent the interbank rates lower.
The three-month Hong Kong Interbank Offered Rate was fixed lower at 0.69321 percent from the previous 0.70500 percent.
"They are happy with it testing 7.75 and with injecting liquidity especially at a time when there are deflationary forces," said Stephen Yang, analyst with Seedorf Luxman & Partners in Singapore.
HKMA chief Joseph Yam warned on Thursday hefty fund inflows could inflate asset prices in the territory, while local economic conditions remained difficult. He said the HKMA had issued extra exchange fund bills to absorb some of the funds, otherwise the aggregate balance would have been about HK$300 billion.
Asian dollar funding costs remained below 1 percent as dollar London interbank offered rates remained low, indicating banks' increased willingness to lend amid easing credit strains.
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