The Hong Kong Monetary Authority ("HKMA") announced today (6
September) the introduction of an enlarged Discount
Window and a term repos facility in the
fourth quarter of 1999 to address the potential problem of
excessive tightness in the money market which might arise from Y2K
related concerns.
The enlarged Discount Window will be available
from 15 November 1999 to 31 January 2000. It will increase the
amount of HKD liquidity that can be obtained by licensed banks
through the Discount Window by temporarily removing existing
restrictions and the HKMA accepting a wider range of debt
securities as eligible collateral:
- For existing categories of eligible paper, the whole of a
bank's holdings is discountable at Base Rate (or, for certain
categories, Base Rate plus 1/4%) - i.e. the 5% premium on the
second 50% of holdings is suspended.
- The repeated borrowing restriction on the use of non-Exchange
Fund ("EF") paper is suspended.
- The "grandfathered issues only" rule for certain non-EF paper
is suspended; i.e. non-EF public sector paper and AAA-rated issues
in CMU will be eligible on the same basis as grandfathered issues,
even if issued since September 1998.
- Other investment grade or higher HKD paper in CMU will also be
eligible, but in this case HKMA will have discretion over the
interest rate, up to a maximum of the higher of Base Rate plus 5
1/2% and overnight HIBOR.
At its discretion, the HKMA will be willing to respond to
requests for access to overnight lending through the Discount
Window at any time during business hours. This flexibility will
enable the HKMA to pre-empt any gridlock in the payment system that
could arise due to excessive tightness in the money market prior to
the normal opening of the Window.
The term repos facility will be available from
1 December 1999 to 31 January 2000. The facility allows licensed
banks to obtain in advance HKD liquidity from the HKMA for the
year-end at a known price. The facility will help to remove
uncertainty on the availability of HKD liquidity near the year end.
It is structured as follows :
"The two measures are consistent with the approach being adopted
by other international financial centres in tackling Y2K related
issues. There is broad agreement that central banks should stand
ready to be more flexible in their money market operations - for
example by accepting a wider range of collateral or by departing
temporarily from normal rules about interest charges if necessary,"
said Mr. Tony Latter, Deputy Chief Executive of the HKMA.
"We expect that the announcement on these two measures should
pre-empt some of the potential pressures in the interbank markets.
However, should conditions demand, the HKMA stands ready to
commence these arrangements earlier, or extend the finishing date,
or even to start them earlier but only on a temporary basis. On the
other hand, to prevent possible abuse of the measures, for example
to fund speculative outflows, the HKMA reserves the right to
suspend or amend these special arrangements if the external
situation so requires," added Mr. Latter.
Hong Kong Monetary Authority
6 September 1999
