Hong Kong dollar faces more pressure after fall below US dollar peg - DBS banker |
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Published
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Thu, 18 Jan 2007 06:00
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HONG KONG (XFN-ASIA) - The Hong Kong dollar is likely to face further pressure in the short to medium term after falling below its official peg to the US dollar in Asian trade this week, an official at DBS Bank (Hong Kong) said.Yesterday, the Hong Kong dollar reached a low of 7.8047 against the US dollar, off its official US dollar peg at 7.80. It continued softening today, hitting a low of 7.8079 in morning trade.'The major culprit behind the fall was the large 150 - 200 basis points interest rate differential between Hong Kong and the US,' Mark Wan, vice president for treasury at DBS Bank HK, told XFN-Asia.He said the one-year interbank rate in Hong Kong currently stands at 4.18 pct, while US one-year interbank rate is at 5.37 pct.'It's not a case of capital outflow, but more of local banks putting more and more monies into the US dollar so they can get higher interest rates while paying most of the customers Hong Kong dollar rates for their savings,' he said.Another banker, who declined to be identified, said the Hong Kong Monetary Authority (HKMA), the territory's de facto central bank, expressed concern about the weakening of the local currency from its official peg to the US dollar.'HKMA called up many banks to ask what's happening and we simply told them what's going on. I don't think they can do anything about the HK-US interest rate differential. All they can do is defend the Hong Kong dollar in case of weakness,' he said.'I believe local banks will continue buying up the US dollar as a way of maximizing returns from investments, although this could cause some pressure on the Hong Kong dollar,' he said.An HKMA spokesperson, however, told XFN-Asia the authority does not see anything abnormal in the local currency's trade against its US counterpart.'The Hong Kong dollar continues to trade within the convertibility range, that's why we don't see any abnormality. We are keeping a close watch of the situation,' she said.The authority set in May 2005 a convertibility band of 7.75 to 7.85 Hong Kong dollar to the US dollar, within which the local currency will trade against its US counterpart.The spokesperson declined to comment on what caused the Hong Kong dollar's fall below its official peg to the US dollar.'We don't comment on market trends,' she said.Wan of DBS Bank said local banks are likely to continue buying up the US dollar in their desire to get higher returns.'I believe this phenomenon will continue in the coming months unless there is a significant narrowing in this differential and until the Hong Kong dollar perhaps follows the yuan's appreciation against the US dollar,' he said.'However, I don't see the Hong Kong dollar following the yuan's move anytime soon, which means the local currency will likely see more pressures in the near future,' he said.Despite the Hong Kong dollar's fall below its official peg to the US dollar, Wan believes that it will continue to trade within the convertibility band set by the HKMA.'They said they are committed to see the Hong Kong dollar trade within this range and people don't doubt their resolve in keeping their commitment,' he said.He said many people are quite happy to see some weakness in the Hong Kong dollar as this would boost the economy.'A weaker Hong Kong dollar will likely attract more travellers from the mainland to come to Hong Kong. Exporters will also see more demand for their products,' he said.A slight downside, however, is the prospect of an uptrend in inflation over time as Hong Kong imports most of its foodstuff from China, he said.(1 usd = 7.8 hkd)jun.concepcion@xfn.com
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