The Monetary Authority announced today additional three-month Exchange Fund Bills will be offered in the two upcoming tenders, $2 billion each, on October 28 and November 4. This will increase the supply of Exchange Fund Bills by $4 billion.

To maintain the current liquidity of the banking system, the authority operated within the Convertibility Zone today by purchasing US dollars against Hong Kong dollars, so that the level of the Aggregate Balance will be little affected by the new papers' issue.

The Aggregate Balance is projected to increase by $3.996 billion, to about $14 billion on Wednesday.

Such increase in the Aggregate Balance will be largely offset in two steps by completing the allotments of the additional Exchange Fund Bills on October 29 and November 5. The transitory increase in the Aggregate Balance will eventually be largely unchanged.

The increase in the supply of short-dated Exchange Fund paper is primarily to meet the increased demand by banks for liquidity-management purposes.

In recent weeks, there has been unusually strong demand for Exchange Fund paper by banks for liquidity-management purposes due to heightened credit and liquidity concerns. The strong demand for the paper is reflected in the very low yield of short-dated Exchange Fund paper.