Hong Kong’s “huge” foreign exchange reserves of about US$440 billion are enough to maintain the linked exchange rate system with the US dollar even as Washington’s rising interest rates lead to capital outflows, Hong Kong Financial Secretary Paul Chan (陳茂波) said.
Chan is the latest official to address the strength of the territory’s reserves after Hayman Capital Management LP chief investment officer Kyle Bass last week wrote on Twitter that the Hong Kong Monetary Authority’s reserves to defend the Hong Kong dollar were falling because of recent interventions to prop up its value.
Bass said the reserves could be exhausted by the end of next month.
Hong Kong has seen weak demand and capital outflows, as expected, since the US raised interest rates repeatedly this year, Chan wrote.
The Monetary Authority had as of Friday undertaken more than HK$170 billion (US$21.7 billion) in sell orders, with the banking system balance falling to about HK$165 billion as a result, he said.
Chan yesterday wrote in a blog post that the territory’s public finances are robust, and its risk monitoring mechanisms are appropriate and powerful for the situation.
“Hong Kong’s foreign exchange reserves are huge — up to more than US$440 billion, equivalent to about 1.7 times the monetary base of the Hong Kong dollar, the financial and banking system is liquid, the bank operation is stable, and the asset quality is excellent, which are the solid foundations for us to maintain the linked exchange rate system,” he wrote.
As the US raised interest rates, holders have “sold Hong Kong dollars and bought dollars” to earn higher interest rate returns, Chan wrote. “Further interest rate hikes in the United States will inevitably affect the flow of capital and changes in asset prices in the Hong Kong market.”
The local currency’s interest rate would “gradually rise,” reducing the outflow of funds from the Hong Kong dollar market, he added.
As rates increase, the mortgage repayment burden on property owners will inevitably increase, he said.
The public should adopt a “prudent strategy” when purchasing property or making other investment decisions, he said.
While there has been a slight correction in Hong Kong property prices in the past few months, they have generally remained stable, Chan wrote.
The Monetary Authority on Friday defended the system that pegs its currency to the US dollar, condemning recent “rumors” of its collapse as irresponsible.
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