Hong Kong Monetary Authority says local currency deposits dropped only 0.1 per cent in November, in further sign of banking system resilience

Enoch Yiu

Total Hong Kong dollar deposits dropped 0.1 per cent in November, the Hong Kong Monetary Authority said on Tuesday, in a sign the city’s banking system had held up amid the ongoing anti-government protests.

Hong Kong dollar deposits are a key indicator of money flowing in and out of the city, and they have been stable during the seven-month-long anti-government protests. The deposits edged down to HK$6.908 trillion (US$887.1 billion) in November from HK$6.914 trillion, according to monthly statistics issued by the HKMA.

“Clearly this could not be a sign of funds flowing out of the Hong Kong dollar system,” Howard Lee, the HKMA’s deputy chief executive, said in an article published on the de facto central bank’s website on Monday.

On a longer-term basis, Hong Kong dollar deposits rose by 3 per cent during the first 10 months of 2019, while US dollar deposits rose 1.8 per cent, which showed funds had not left the Hong Kong banking system in a big way, Lee said.

A big outflow would mean a weak Hong Kong dollar and a lower aggregate balance with the banking system. Lee added that the HKMA had not needed to defend the currency since April, with the aggregated balance remaining at HK$54 billion.

HKMA insists Hong Kong’s political crisis has not sparked capital flight

Meanwhile, in a further boost to the city’s banking system, an active initial public offering market pushed the Hong Kong dollar’s exchange rate to a two-and-a-half year high on Tuesday.

The Hong Kong dollar exchange rate strengthened from 7.84 in August to 7.7824 per US dollar on Tuesday, its strongest level since May 2017. Lee said the city’s active IPO market had pushed up interest rates and the Hong Kong dollar. Hong Kong’s stock exchange this year became the world’s largest listings market for the seventh time in 11 years, raising US$40.22 billion, according to Refinitiv.

Tommy Ong, managing director and head of wealth management solutions, treasury and markets for Greater China at DBS Bank, said a tight interbank rate in the second half of the year had also supported the Hong Kong dollar exchange rate.

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“Going into 2020, the Hong Kong dollar interbank interest rate will come down to much normal levels. This is because of low loan growth due to lacklustre economic growth. When the Hong Kong dollar interest rates come down next year, the Hong Kong dollar will also weaken towards the 7.83 level,” Ong said, adding that the local financial markets should continue to be stable next year as the dollar peg-linked system works well.

The Exchange Fund, the war chest that Hong Kong uses to defend its currency, dropped 1 per cent, or HK$45.2 billion, to HK$4.143 trillion as of the end of November. This came after a decline of 0.9 per cent in October. The fund had risen to a five-month high of HK$4.229 trillion at the end of September. The fall was due to the settlement of foreign exchange-related contracts and a decrease in the market value of Hong Kong equities held by the fund, the HKMA said.

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