IMF Backs Hong Kong Commitment to Dollar

The Hong Kong dollar is pegged at 7.80 to the U.S. dollar but is allowed to trade between 7.75 and 7.85.

A reform introduced in 2005 allows the Hong Kong Monetary Authority to buy Hong Kong dollars at HK$7.85 to prevent excessive Hong Kong dollar weakness and to buy U.S. dollars at HK$7.75 to prevent excessive Hong Kong dollar strength.

"Since the May 2005 refinements and until recently, the HKD had floated inside the trading band with rare interventions and the system coped well with periodic stresses," the IMF said in a report released Tuesday.

Hong Kong's de facto central bank has stepped in at least three times in the past month to defend the linked exchange rate. Authorities have repeatedly dismissed suggestions the currency peg be abandoned, saying the territory's financial stability hinges on warding off potentially destabilizing attacks by speculators.

The Hong Kong dollar has been rising against the U.S. dollar as investors pour money into the soaring Hong Kong stock market. The U.S. dollar is also at multiple-decade lows against many major currencies, and if U.S. interest rates are cut again to spur economic growth, the greenback may weaken further. The Federal Reserve cut its key interest rate twice this year, the first cuts in four years.

The IMF also said in the report it expects a growth rate of 5.5 to 6 percent in Hong Kong's gross domestic product this year, and growth below 5 percent next year on a weaker external outlook.