Hong Kong File Photo: VCG

The aggregate balance of Hong Kong's banking system remains stable, and US interest rate hikes won't affect Hong Kong's currency or its financial stability, a spokesperson for the Hong Kong Monetary Authority (HKMA) told the Global Times on Thursday.

The HKMA's aggregate balance fell to HK$49.23 billion ($6.27 billion) on Thursday, its lowest level since 2008, according to the authority.

The aggregate balance refers to the sum of the balances in clearing accounts maintained by banks with the HKMA, and it is a measure of interbank liquidity. 

The fall in the aggregate balance has triggered concerns among investors about the city's currency peg and its economic health, according to media reports.

Citing an analyst, the South China Morning Post reported on Wednesday that the widening gap between local and global interest rates has resulted in sustained carry trades and weakness in the Hong Kong dollar.

Hong Kong adopted the Linked Exchange Rate System (LERS) in 1983, which ensures that the Hong Kong dollar exchange rate remains stable within a band of HK$7.75-7.85 per US$1.

The HKMA sells and buys the local currency to maintain the exchange rate within the band. On Wednesday, the HKMA bought about HK$6.9 billion to support the currency, its 48th such move since May 12, 2022.

"The overall aggregate balance in Hong Kong's banking system is stable, and cash flowing out of the Hong Kong dollar doesn't necessarily mean it's flying out of the Hong Kong financial market," the spokesperson said.

The aggregate balance is a component of Hong Kong's monetary base, and its level won't affect the efficient operation of the LERS mechanism. 

The HKMA will adjust the issuance of exchange fund bills and bonds by taking account of factors including market demand, the spokesperson said.

Global Times