The Monetary Authority's first operation within the convertibility zone on May 25 has taken into account market conditions and is in strict conformity with Currency Board principles, the authority's Chief Executive Joseph Yam says.

The authority said the Hong Kong dollar strengthened and its term rates rose across the board, reflecting the increased liquidity demand for Hong Kong dollars ahead of a number of large-scale initial public offerings.

In view of the situation, the authority yesterday purchased US dollars against Hong Kong dollars. The move involved $544 million, bringing the forecast aggregate balance on May 27 to $1.3 billion.

Equal increase

In his latest Viewpoint article on the authority's website, Mr Yam said the operation was carried out in strict conformity with Currency Board principles - the increase in the Monetary Base is matched by an equivalent increase in the foreign reserves.

He said market operations within the convertibility zone by the authority will help address anomalies, promoting the smooth functioning of the money and foreign exchange markets in accordance with Currency Board arrangements.

Convertibility undertaking on the strong side of the Linked Exchange Rate, introduced last week, will help remove the uncertainty about the extent with which the exchange rate may strengthen, Mr Yam said.