Financial Secretary Paul Chan Mo-po says in his blog that people shouldn't worry too much about the outflow of Hong Kong dollar. He also warns local residents should pay attention to the risks of overborrowing.
On Friday, as part of its first intervention in foreign exchange markets since 2015, the Hong Kong Monetary Authority purchased Hong Kong dollars after the local currency hit the weaker end of its trading range.
Chan noted the US Federal Reserve has hiked interest rates six times since 2015 - luring SAR investors to invest in the United States, and therefore leading to HK dollar outflows. He said under the pegged exchange rate system, the outflow of capital, increase of interest rate in Hong Kong, and exchange rate stability are all part of the normal phenomenon.
The Hong Kong dollar is pegged at 7.8 to the greenback, but can trade between the high and low limits of 7.75 and 7.85. Under the currency peg, the HKMA is obliged to intervene when the local currency hits 7.75 or 7.85 to keep the band intact.
Chan said the government has sufficient financial resources to handle the fluctuation of the exchange rate, and has already gotten well prepared. The SAR also has an ample foreign exchange fund, and he has confidence the city can handle the extreme case in event of major money outflow.
Meanwhile, Chan says the interest rate in Hong Kong will be closer to the US interest rate after the outflow of capital, and will not surge in the short term. However, the borrower will pay more on interest expense. He warns residents to pay attention to the risks since the low interest regime won't last indefinitely.
Separately, HKMA chief executive Norman Chan said the authority will maintain the Hong Kong dollar's purchasing power, making local residents and international investors feel confident about the currency.
Hong Kong has survived the financial crises of 1998 and 2008, thanks mainly the foreign exchange fund, Norman Chan said, adding that the SAR will definitely continue to maintain sufficient foreign exchange fund in the future, which is the last defense to protect financial security in Hong Kong.
Meanwhile, he said Hong Kong should continue to raise the requirement of bank's risk management, making sure that the banks will maintain stability when facing external shocks.
HKMA bought HK$3.368 billion worth of Hong Kong dollars late in the US session on Friday. This was in addition to HK$3.038 billion the central bank bought earlier in the US session that day.
Therefore, including another HK$3.258 billion of HK dollars acquired the previous day, the HKMA has purchased a total of HK$9.66 billion of Hong Kong dollars from the foreign exchange market.