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HKMA Buys USD 1.3 Billion in Currency Defense on Merger Demand

The Hong Kong Monetary Authority made purchases on July 1 for the first time since December 2012 and said demand for the local currency “increased lately,” partly driven by “commercial activities, including merger and acquisition activities and dividend distribution.” The authority, known as the HKMA, said today it has no further comments to add to last week’s statement.

Hong Kong linked its currency to the  U.S. dollar  in 1983 when negotiations between China and the U.K. over the city’s return to Chinese rule spurred capital outflows. It was kept at HK$7.8 per dollar until 2005, when policy makers committed to limiting the currency’s decline to HK$7.85 and capping gains at HK$7.75. The Hong Kong dollar traded at 7.7500 as of 9:53 a.m. local time.

“The Hong Kong dollar has been strong for a technical reason due to the M&A activities,” said Ho Man Chun, a strategist at Bank of Communications Co.’s Hong Kong branch. “We aren’t seeing strong inflows into the city’s markets, nor any tightness in terms of liquidity in the banking system.”

’Most Suitable’

The  overnight  Hong Kong dollar ’s interbank rate was at 0.07108 percent yesterday, down from 0.19857 percent on June 30, according to fixings provided by the Hong Kong Association of Banks. The  rate  for the 12-month tenor traded at 0.85606 percent, little changed from 0.865 percent on June 30.

The Hong Kong government’s commitment to maintaining the peg “is clear and unwavering,” HKMA chief  Norman Chan  wrote in an article published on the authority’s website on July 7. “Despite its imperfections, the linked exchange-rate system is still the most suitable regime for Hong Kong after thorough consideration of all the related factors.”

The city’s dollar peg doesn’t necessarily need to be changed,  Hong Kong Economic Times  reported today, citing an interview with former HKMA chief  Joseph Yam . Every monetary system needs to be reviewed from time to time, Yam said.

Overseas-Chinese Banking Corp. will forge ahead with its $5 billion bid for Hong Kong’s  Wing Hang Bank Ltd. (302) , the Singapore lender’s chief executive officer Samuel Tsien said in an interview yesterday.

Hong Kong-listed  Citic Pacific Ltd. (267)  said on June 17 that it would offer an additional $690 million of stock to 10 investors including Tencent Holdings Ltd., after selling $5.1 billion of shares in May. Citic Pacific is raising funds through share sales in order to buy $36 billion of assets from its state-owned Chinese parent.

(Source: Bloomberg )