******************************************
The following is issued on behalf of the Hong Kong Monetary Authority:
The Hong Kong Monetary Authority (HKMA) announced today (November 24) that additional Exchange Fund Bills, totalling HK$8,000 million, will be offered in a tender on December 2 (Tuesday) to meet increased demand for the paper from banks.
The issuance of additional Exchange Fund paper will be conducted by increasing the size of a regular 3-month Exchange Fund Bills issue and launching a special issue of 98-day Exchange Fund Bills. When the special issue reaches maturity in March 2009, the HKMA will roll over the paper by merging it into a regular 3-month Exchange Fund Bills issue. More details can be found in the revised issuance schedule for Exchange Fund Bills and Notes, which is attached at the Annex.
The additional supply of short-dated Exchange Fund paper is primarily to meet the strong demand for Exchange Fund paper from banks for liquidity-management purposes due to heightened credit and liquidity concerns, and strong liquidity needs near the end of the year. The strong demand for the paper is reflected in the very low yield of short-dated Exchange Fund paper.
This increase in the supply of Exchange Fund Bills is consistent with Currency Board principles, since the additional issuance simply represents a change in the composition of the Monetary Base, with a shift from the Aggregate Balance to Exchange Fund paper. The Monetary Base remains fully backed by foreign reserves. After this issuance of additional Exchange Fund Bills, interbank liquidity will remain abundant and this issuance is not expected to have a significant impact on liquidity conditions and hence interest rates. The HKMA will monitor the situation closely and stand ready to take appropriate action to maintain adequate liquidity within the system if necessary.
The Aggregate Balance is projected to decline by HK$8,000 million on December 3 (Wednesday).
The forecast change in the Aggregate Balance arising from the additional issuance of Exchange Fund paper is published on the HKMA website, the Reuters screen (HKMAOOC) and Bloomberg.
For further enquiries, please contact:
Peggy Lo, Manager (Communications), at 2878 1687 or
Hing-fung Wong, Manager (Communications), at 2878 1802
Ends/Monday, November 24, 2008
Issued at HKT 16:35
NNNN
