HKMA Intervention Has No Effect

Nasdaq: HKMA intervenes again as Hong Kong dollar weakens, buys HK$5.77 bln

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.

When intervention started last week, the HKMA spent a small amount. They could drain the clearing accounts and then move on to reserves and it would have taken roughly 20 years to burn through reserves. At the current rate, the clearing accounts will be drained in a month and the reserves will be gone in 2 years. It looks like they will be raising interest rates sooner rather than later.

Bloomberg: Hong Kong Gets Prominent Back-Seat Driver in Dollar Peg Defense

The city’s de facto central bank said in a statement Tuesday there’s no need for it to adjust interest rates proactively because that would spur inflows, offsetting the impacts of higher borrowing costs and stoking concerns over the city’s determination to defend its linked exchange rate.

Former HKMA Chief Executive Joseph Yam apparently disagrees. In an interview with local media published Monday, he said there’s room for the de facto central bank to adjust rates. One of the options is selling more exchange fund bills -- a move that would tighten liquidity and boost borrowing costs.