The Hong Kong dollar is pegged to a tight band of between 7.75 and 7.85 versus the U.S. dollar.
The aggregate balance, the key gauge of cash in the banking system, will decrease to HK$49.23 billion on April 20, an HKMA spokesperson said on Wednesday morning. That is the lowest level in nearly 15 years. To prevent Hong Kong dollar liquidity from getting extremely tight, some analysts expect the HKMA to consider releasing part of the liquidity from the exchange fund bills market, which are Hong Kong dollar debt securities issued by the HKMA, to the interbank market.
Such a move could provide more cushion to interbank liquidity and cap the rise of short-term interest rates, they said. The HKMA could do so by partially rolling over maturing bills. About HK$70 billion to HK$80 billion worth of exchange fund bills matures every week. "The sheer size of the exchange fund bills market, at about HK$1.2 trillion, means liquidity is unlikely to get extremely tight for a sustained period," said Frances Cheung, rates strategist at OCBC Bank.
(Reporting by Georgina Lee; Editing by Chris Reese)
