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 10, 17 and 24 February, totalling HK$20,400 million, to meet the increased demand for the paper by banks.

The issuance of additional Exchange Fund paper will be conducted by expanding the supply of 3-month and 6-month Exchange Fund bills.  The 3-month Exchange Fund Bills to be tendered on 10, 17 and 24 February will be increased by a total of HK$14,000 million.  The 6-month Exchange Fund Bills to be offered on 10 and 24 February will be expanded by HK$3,400 million in total.  In addition, a new issue of 6-month Exchange Fund Bills, with a size of HK$3,000 million, will be offered on 17 February and the issue will be rolled over upon maturity.  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 due to continuing credit and liquidity concerns arising out of the international financial crisis.  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 is expected to 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 HKMA will monitor the situation closely and stand ready to take appropriate action to maintain adequate liquidity within the system if necessary.

The Aggregate Balance is projected to decline by about HK$7,700 million on 11 February, by about HK$7,000 million on 18 February, and by about HK$5,700 million on 25 February.

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:
Thomas Chan, Communications Chief, at 2878 1480 or
Hing-fung Wong, Manager (Communications), at 2878 1802

Hong Kong Monetary Authority
3 February 2009