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 2, 9 and 12 February, totaling HK$25,000 million, to meet the increased demand for the paper by banks given the abundance of liquidity in the banking system. 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 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 2, 9 and 12 February will be increased by a total of HK$9,000 million. The 6-month Exchange Fund Bills to be offered on 9 and 12 February will be expanded by HK$7,000 million in total. In addition, a new issue of 6-month Exchange Fund Bills, with a size of HK$9,000 million, will be offered on 2 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 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 Aggregate Balance is projected to decline by about HK$15,000 million on 3 February, by about HK$3,000 million on 10 February, and by about HK$7,000 million on 17 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 : Tentative Schedule on Issuance of Exchange Fund Bills and Notes (EFBNs) from January to March 2010

For further enquiries, please contact:
Hing-fung Wong, Manager (Communications), at 2878 1802 or
Yokee Wong, Manager (Communications), at 2878 1213

Hong Kong Monetary Authority
26 January 2010