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HONG KONG - HONG KONG. Local currency deposits in Hong Kong shrank the most month-on-month in over a year in August while U.S. dollar deposits ballooned, official data showed on Monday.
Hong Kong dollar deposits declined by 1.6% last month, the steepest monthly fall since May 2018, while U.S. dollar deposits grew by the most since December 2018 at a rate of 2.7%, according to Refinitiv Datastream.
The city's economy and financial markets have been under pressure amid escalations in local political unrest and the U.S.-China trade war in recent months.
But central bank Hong Kong Monetary Authority (HKMA)attributed the drop to "less buoyant fund-raising activities during the month compared to July," noting that "a wide range of factors" including interest rate movements could influence deposit compositions.
"Fluctuations in monthly deposit changes are therefore normal," the central bank said in the press release.
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Carie Li, economist at OCBC Wing Hang Bank, said fears of capital outflows amid escalating protests in August may have sent flows from Hong Kong dollar deposits to foreign currency ones, but that could reverse as markets calmed in September.
"Overall this was not a huge change. We shouldn't read too much into one month's data," she said.
Deposits denominated in the local currency grew 1.8% year-on-year, decelerating from the 3.4% expansion in July. U.S. dollar deposits added 9.4% from a year earlier, up from 8.4% growth in July, according to Refinitiv Datastream.
HKMA said the uptick in U.S. dollar deposits was driven by a "transfer of funds resulting in a higher amount of foreign-currency deposits placed by the Exchange Fund," which backs Hong Kong's currency peg with the greenback.
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The central bank was not immediately available for comment when asked by Reuters about the reason behind this transfer of funds.
The aggregate deposit stockpile of all currencies grew 4.6% year-on-year in August, slower than July's 5.1%, and inched up 0.2% on a monthly basis.
The Hong Kong dollar is linked to the U.S. dollar at 7.75-7.85. It traded flat at 7.8407 per dollar at 1235 GMT.
