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 9 June, 16 June, 23 June and 30 June totalling HK$46,100 million, to meet the increased demand for the paper by banks given the abundance of liquidity in the banking system as a result of the substantial inflow into Hong Kong dollar recently.

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 9 June, 16 June, 23 June and 30 June will be increased by a total of HK$41,000 million.  The 6-month Exchange Fund Bills to be offered on 16 June and 30 June, together with the 12-month Exchange Fund Bills to be offered on 23 June, will be expanded by HK$5,100 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$8,000 million on 10 June, by about HK$10,700 million each on 17 June and 24 June, and by about HK$16,700 million on 2 July.

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 1: Tentative Schedule on Issuance of Exchange Fund Bills and Notes (EFBNs) from April to June 2009
Annex 2: Tentative Schedule on Issuance of Exchange Fund Bills and Notes (EFBNs) from July to September 2009

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
2 June 2009