The Hong Kong Monetary Authority (HKMA) intervened as many as seven times into the money market yesterday to stem the strong Hong Kong dollar, saying that it would not set a limit on liquidity injections to defend the currency peg.

The HKMA was forced to inject a total of HK$18.213 billion into the banking system to stem the appreciating Hong Kong dollar, which has been trading at the upper limit of a preset trading band of HK$7.75-HK$7.85 against the US dollar.

"We do not notice any market anomalies at the moment," HKMA chief executive Joseph Yam told reporters.

The injections might also help bring down commercial interest rates, Yam added.

The HKMA is fully committed to maintaining the decades-old peg to the US dollar under the link exchange rate system. "There is no limit to the expansion of the aggregate balance," Yam added.

Yesterday's injections by the HKMA brought the total worth of such interventions to HK$32.319 billion so far this week. As a result, the aggregate balance - the sum of balances on clearing accounts maintained by banks with the HKMA - was projected to increase to a record high of HK$84.272 billion on Nov 24, when the latest transactions are settled.

However, the Hong Kong dollar stayed at the top of its trading band for most of the day despite the injections. The spot Hong Kong dollar was quoted at 7.7501 against a dollar, closed to the upper band.

Francis Cheung, a fixed-income strategist at Standard Chartered, said the strong Hong Kong dollar was due to the unwinding of carry trades.

"The Hong Kong dollar may remain strong in the coming four to five weeks," she said, adding the strong tide will force the central bank to inject more liquidity into the market.

Local interbank rates softened after the injections. The three-month Hong Kong interbank offered rate (Hibor) was quoted at 1.9 percent in the afternoon, its lowest since late May. But Cheung said the room for banks to cut prime rates is limited, as banks have to consider their margins in mortgage business.

She noted that last time when the interbank rates dropped to nearly zero, banks maintained the prime rate at around 5 percent.

The three-month Hibor recently stood at around 2 percent, so banks are unlikely to slash the prime rates.

(HK Edition 11/21/2008 page2)