Issuance of additional Exchange Fund Bills

Press Releases

28 Jul 2009

Issuance of additional Exchange Fund Bills

The Hong Kong Monetary Authority (HKMA) announced today (Tuesday) that additional Exchange Fund Bills will be offered in the tenders on 4 August, 11 August, 18 August and 25 August totalling HK$40,700 million, to meet the increased demand for the paper by banks given the abundance of liquidity in the banking system.

The issuance of additional Exchange Fund paper will be conducted by further expanding the supply of 3-month, 6-month and 12-month Exchange Fund bills through a corresponding reduction of the Aggregate Balance.  The 3-month Exchange Fund Bills to be tendered on 4 August, 11 August, 18 August and 25 August will be increased by a total of HK$27,000 million.  The 6-month Exchange Fund Bills to be offered on 11 August and 25 August, together with the 12-month Exchange Fund Bills to be offered on 18 August, will be expanded by HK$13,700 million in total.  Details can be found in the revised issuance schedule for Exchange Fund Bills and Notes (Annex).

The additional supply of short-dated Exchange Fund paper is designed to meet the strong demand for Exchange Fund paper by banks for liquidity management.  The strong demand for the paper is reflected in the very low yield of short-dated Exchange Fund paper.

The increase in the supply of Exchange Fund Bills is consistent with Currency Board principles, since the additional issuance simply represents a change in the composition of the Monetary Base, with a shift from the Aggregate Balance to Exchange Fund paper.  The Monetary Base remains fully backed by foreign exchange reserves.  Interbank liquidity will remain abundant after the issuance of additional Exchange Fund Bills, which is not expected to have a significant impact on liquidity conditions and interest rates.

The Aggregate Balance is projected to decline by about HK$9,000 million on 5 August, by about HK$14,000 million on 12 August, by about HK$7,700 million on 19 August and by about HK$10,000 million on 26 August.

The forecast change in the Aggregate Balance arising from the additional issuance of Exchange Fund paper is published on the HKMA website, the Reuters screen (HKMAOOC) and Bloomberg.

Annex

For further enquiries, please contact:
Peggy Lo, Manager (Communications), at 2878 1687 or
Hing-fung Wong, Manager (Communications), at 2878 1802

Hong Kong Monetary Authority
28 July 2009

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Last revision date : 28 July 2009