HKMA purchased $3.26b in local currency to boost struggling dollar

This comes as the Hong Kong dollar plunged to a thirteen year low.

Bloomberg reports that the Hong Kong Monetary Authority has finally stepped in to buy local currency for the first time since 2005 in a bid to boost the struggling Hong Kong dollar.

The de-facto central bank bought a total of $3.258b, including $816m it bought on Thursday as the Hong kong dollar plunged to the weak end of its permitted band at $7.85 against the USD.

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"This is the first time that the weak-side CU of 7.85 is triggered after the HKMA shifted the weak-side CU to that level in 2005, as part of the 'Three Refinements' to the operation of the Linked Exchange Rate System (LERS),” said HKMA chief executive Norman Chan in a statement. “I reiterate that the HKMA will buy HKD and sell USD at 7.85 level to ensure that the HKD exchange rate will not weaken beyond 7.8500.”

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With staggering foreign exchange reserves, the HKMA is in a strong position to defend its city’s currency.

Although the HKMA notes that such operations are normal and in accordance with the linked exchange rate system with the greenback, the intervention is still significant because the purchases have the potential to boost borrowing costs by draining liquidity.

Here’s more from Bloomberg: