The Hong Kong Monetary Authority (HKMA) yesterday intervened in the currency market again and injected HK$2.325 billion into the local banking system in an unprecedented effort to stem an appreciating Hong Kong dollar and ease the lenders' liquidity pressure.

Yesterday's injection helped Hong Kong's banking system accumulate HK$63.69 billion on its balance sheet.

"The HKMA has once again given timely support to worried lenders in the city," said Dick Lee, an analyst at Phillip Securities. "By boosting funds available for financial companies, the government is demonstrating its commitment to maintaining the stability of the local banking system."

Analysts expect that Hong Kong Monetary Authority will keep injecting capital into the money market to ease liquidity pressure faced by lenders till inter-bank lending business starts booming again. Bloomberg

Lee thinks the government is obviously quite concerned about the "health condition" of the international financial hub although many economists believe Hong Kong's banking system is still sound and unscathed by the global financial turmoil.

The HKMA started pumping money into banking systems on Sept 16, the day when Lehman Brothers Holdings filed for bankruptcy. The HKMA has since pumped in cash constantly in order to help lower short-term lending rates between banks as well as to borrowers.

Joseph Yam, chief executive of HKMA, said that many banks are concerned about the small- and medium-sized enterprises' solvency but the financial crisis is gradually hurting local firms and retail companies.

"Banks nowadays just don't trust anyone and depositors don't trust banks," Lee said. "But the government's injection should help bolster lenders' and depositors' confidence."

Since the global economic meltdown, banks have been more reluctant to lend money to some companies. They have also taken a tougher approach to credit card debt.

Some Hong Kong retail chains have recently filed for bankruptcy due to the tougher business climate.

Some have raised doubts whether the HKMA's generous support to the banks will lead to its cash crunch.

Phillip Securities' Lee believes the government is quite capable of giving such support. "The government makes thorough planning on its budget and it will inject in a step-by-step manner till the lending activities boom again," he said.

Last Friday the HKMA added HK$3.1 billion to the banking system to prevent the local currency from strengthening beyond the fixed exchange-rate band.

Hong Kong's currency has been pegged to the US dollar since 1983. Under the city's currency system, the HKMA is committed to defending the peg of 7.8 dollars to the US dollar, but it allows the local currency to trade between HK$7.75 and HK$7.85.

(HK Edition 11/20/2008 page2)