April 17, 2018 / 1:38 PM / 5 months ago

UPDATE 2-HKMA intervenes again as Hong Kong dollar weakens, buys HK$5.1 bln

* HKMA buys HK$5.102 bln as local currency weakens

* Brings total intervention to HK$33.7 bln so far

* HK finance chief says no need to worry about outflows

* HK dollar at 7.8498/dollar at 0001 GMT (Adds latest intervention)

By Donny Kwok

HONG KONG, April 18 (Reuters) - The Hong Kong Monetary Authority (HKMA) stepped into currency markets again early on Wednesday, buying an additional HK$5.102 billion ($649.70 million) in U.S trading hours as its currency repeatedly hit the weak end of its trading band.

The latest intervention will reduce the aggregate balance - the sum of balances on clearing accounts maintained by banks with the HKMA - to HK$146.151 billion on April 19, according to Reuters data.

Including the aggregate HK$14.68 billion of Hong Kong dollars bought on Tuesday, the HKMA has now mopped up HK$33.7 billion of Hong Kong dollars from the foreign exchange market since Thursday, after the local dollar hit the weaker end of its trading range at 7.85 per U.S. dollar, nudging up a key lending rate that could push borrowing costs higher.

The moves were the first intervention by the territory’s de facto central bank in foreign exchange markets since 2015.

The Hong Kong dollar is pegged at 7.8 to the U.S. dollar, but can trade between 7.75 and 7.85. Under the currency peg system, the HKMA is obliged to intervene if trading hits either end of the band.

On Sunday, Hong Kong Financial Secretary Paul Chan said there was no need to worry about outflows of the local currency although he warned that people should not expect the low-interest rate environment to last forever.

Hong Kong has raised its base rate charged through its overnight discount window twice in the past few months, in lockstep with the U.S. Federal Reserve. The base rate now stands at 2.00 percent.

The city’s major banks have left prime rates unchanged, although the HKMA has said it expects them to raise rates gradually.

As the former British colony pegs its currency to the U.S. dollar, its money market rates should mirror those of its U.S. counterpart, but the gap has now widened since the Federal Reserve started raising interest rates from ultra-low levels adopted during the 2008 financial crisis.

Hong Kong’s markets have remained flush with excess cash, keeping a lid on local currency interest rates.

Most market participants do not see the current bout of weakness as a threat to the currency peg even though high liquidity stemming from Chinese and overseas investment into Hong Kong’s domestic markets is anchoring short-term interest rates and putting downward pressure on the currency.

The currency traded at 7.8498 against the U.S. dollar as at 0001 GMT. ($1 = 7.8498 Hong Kong dollars) (Additional reporting by Twinnie Siu in Hong Kong and Gertrude Chavez-Dreyfuss in New York; Editing by Anne Marie Roantree and Sam Holmes)

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