The Hong Kong dollar depreciated in effective terms by 0.5% between September 23 and October 23 because other currencies had appreciated more against the US dollar.

The latest Currency Board Operations report said that during the period September 29 to October 24, short-term interbank interest rates fell close to zero, and the Monetary Authority had sold $3.29 billion under the Currency Board Account.

This reflected the inflow of funds, and that the Hong Kong dollar forward points had continued to be at a considerable discount, and the negative spreads between Hong Kong dollar interbank interest rates and their US dollar counterparts had widened during the period.

In accordance with Currency Board principles, changes in the monetary base during the reporting period had been fully matched by changes in foreign reserves.

It said financial markets in Hong Kong continued to be strong, driven by brighter economic prospects and increased fund flows.

Sentiment towards the Hong Kong currency had changed markedly in the light of these developments and against the background of a weakening US dollar and political pressure for a revaluation of the renminbi. It appeared that the concerns in the market about deflation, the budget deficit and unemployment had for the time being subsided.