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Guarding Hong Kong


The Government announced yesterday to suspend the legislative amendment exercise for the Fugitive Offenders Ordinance and the Mutual Legal Assistance in Criminal Matters Ordinance. On the basis of no time limit and open attitude, we shall restart our communication with all sectors, do more explanation work and listen to different views of society. We will consolidate the comments and report to the Legislative Council Panel on Security before we decide on the next step forward. We hope that this arrangement can help relieve the tension in the community and provide time and room for rational dialogue and discussion among all parties.

With the atmosphere in the community becomes tense, economy and livelihood matters are inevitably affected. In this connection, I have been closely monitoring every aspect of our financial system with colleagues of relevant departments to ensure its smooth and efficient operation.

Firstly, regarding the foreign exchange and currency market, the Hong Kong Interbank Offered Rate (HIBOR) has been increasing in the past few days, but the overall operation of the market is in order. While the One-Month HIBOR has increased 60 basis points to 2.6% when comparing with that in early June, the rate is now coming down from the peak. The increase of HIBOR is led by seasonal factors, for example banks usually prefer to boost liquidity towards the half-year closing in end June. In response to the increase of the Hong Kong dollar (HKD) interest, the HKD exchange rate is generally strong recently, from the level of HKD7.84 to USD1 earlier to HKD7.81 in the last two to three days. This is mainly because the narrowed interest rate gap between HKD and USD makes it less attractive to sell HKD for USD in carry trade. Hong Kong currency is trading flat against USD, hence pushing up the HKD exchange rate.

In fact, when the HKD interest rates rise nearly to the level of that of USD, it will attract the buying of HKD which in turn strengthen HKD exchange rate. On the other hand, the rate will be weakened if the interest rates of HKD are lower than that of USD. This is in line with the automatic interest rate adjustment mechanism under the Linked Exchange Rate System (LERS).

Indeed, there is nothing to worry about the capacity of our banking system in meeting liquidity requirements. According to the regulatory requirements of the Hong Kong Monetary Authority (HKMA), banks of Hong Kong have set up proper mechanisms to manage liquidity risk. The banking system of Hong Kong has adequate capital and ample liquidity. As and when necessary, banks can make use of the Exchange Fund paper amounted to HKD1,000 billion in total to receive sufficient liquidity from HKMA. HKMA will keep a close watch on the market situation to ensure the efficient operation of the Hong Kong currency market and maintain the stability of HKD exchange rates according to LERS.

On securities and futures markets, both have been running smoothly and orderly so far. The exchange, clearing and settlement under the Hong Kong Clearing and Exchanges Limited are properly conducted. The Securities and Futures Commission (SFC) has all along been supervising the liquidity of its accredited funds and further reinforced market supervision to ensure that such funds are managed under a fair and orderly mechanism to serve the best interest of investors.

As regards the land and property market, due to blockage of public access to the Central Government Office (CGO) last week, the closing date of a tendering site has to be extended taking into account safety concern for those submitting tendering document to CGO. We will announce the new closing date for the tender in this week. And for another tendered commercial site in Kai Tak, since the buyer failed to pay the balance of the premium before the due date according to the Conditions of Sale requirements, the deposit previously paid by the buyer was wholly forfeited to the Lands Department. The Department also reserves the right to claim for recovery or compensation as a result. There are diverse analyses and speculations on the tenderer's decision to abandon the purchase and no unanimous conclusion can be drawn. Nonetheless, we believe that market demand on land is still huge and we shall arrange the re-tendering exercise as soon as possible.

To conclude, although the external situation continues to be unclear and tension rises in the community, the Hong Kong economy and financial market are still healthy and in order. We shall continue to monitor market situation and equip ourselves for potential financial risks, so as to provide a stable and reliable financial environment to our citizens and enterprises.

June 16, 2019