HKMA intervenes again as Hong Kong dollar weakens, buys HK$5.77 billion in US trade

By Donny Kwok

HONG KONG (Reuters) - The Hong Kong Monetary Authority (HKMA) stepped into currency markets again in U.S. trading hours, buying HK$5.77 billion ($735 million) in Hong Kong dollars as the currency repeatedly hit the weak end of its trading band.

The latest intervention will reduce the aggregate balance - the sum of balances on clearing accounts maintained by banks with the HKMA - to HK$160.74 billion on April 18, according to Reuters data.

Including the HK$9.357 billion of Hong Kong dollars bought on Monday, the HKMA has now mopped up HK$19.021 billion of Hong Kong dollars from the foreign exchange market since Thursday, after the local dollar hit the weaker end of its trading range at 7.85 per U.S. dollar, nudging up a key lending rate that could push borrowing costs higher.

The moves were the first intervention by the territory's de facto central banks in foreign exchange markets since 2015.

The Hong Kong dollar is pegged at 7.8 to the U.S. dollar, but can trade between 7.75 and 7.85. Under the currency peg system, the HKMA is obliged to intervene if trading hits either end of the band.

On Sunday, Hong Kong Financial Secretary Paul Chan said there was no need to worry about outflows of the local currency although he warned that people should not expect the low-interest rate environment to last forever.

Hong Kong has raised its base rate charged through its overnight discount window twice in the past few months in lockstep with the Fed. The base rate now stands at 2.00 percent.

The city's major banks have left their prime rates unchanged, although the HKMA has said it expects them to raise rates gradually.

As the former British colony pegs its currency to the dollar, its money market rates should mirror those of its U.S. counterpart, but the gap has now widened since the Federal Reserve started raising interest rates from ultra-low levels adopted during the 2008 financial crisis.

Hong Kong's markets have remained flush with excess cash, keeping a lid on local currency interest rates.

Most market participants do not see the current bout of weakness as a threat to the currency peg even though high liquidity stemming from Chinese and overseas investment into Hong Kong's domestic markets is anchoring short-term interest rates and putting downward pressure on the currency.

The currency traded at 7.8499 against the U.S. dollar at 0014 GMT.

($1 = 7.8498 Hong Kong dollars)

(Reporting by Donny Kwok and Twinnie Siu; Editing by Anne Marie Roantree and Sam Holmes)

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