Norman T.L. Chan, Chief Executive, Hong Kong Monetary Authority
The triggering of the weak side Convertibility Undertaking (CU) in the order of HK$16.8 billion in the last two days was mainly driven by interest arbitrage trades. This is the reversal of massive inflow into Hong Kong dollar (HKD) of around $1 trillion previously. The outflow of funds from Hong Kong is a normal and inevitable process for HKD interest rate normalisation under the Linked Exchange Rate System. The HKMA will continue to buy HKD at 7.85 when the weak-side CU is triggered to ensure HKD exchange rate stability. I wish to remind the public again to manage the market and interest rate risks prudently.
Hong Kong banking system has adequate liquidity to cope with outflow of funds. The HKMA also stands ready to calibrate the issuance of Exchange Fund Bills, which amount to $1 trillion in total, to release liquidity in order to deal with possible sharp outflow from HKD.