<p><font face="黑体" size="6"><strong>Citigroup-香港金管局向市场注资削减升值压力</strong></font></p><p><font face="黑体" size="6"><strong>23-Oct-07&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3页</strong></font>
</p><p>&nbsp;</p><p>&nbsp;</p><p><br/></p><p><font size="5">Bottom line<br/>Today’s market intervention by Hong Kong Monetary Authority (HKMA) could<br/>send a signal that it would uphold the HKD trading band at 7.85-7.75/USD. Recently<br/>there has been a market view that the influx of funds and rising inflation may in the<br/>future force the HKMA to widen the HKD trading band. In our view, inflation will<br/>rise in coming years but not high enough to force the HKMA to adopt a stronger<br/>currency to curb imported inflation.<br/>Although the HKMA’s intervention can keep the HKD spot rate in the trading band,<br/>it may not change market expectations and the HKD appreciation in the forward<br/>market. The USD/HKD forward is likely to remain stronger than the strong-side<br/>limit of the HKD trading band at 7.75.<br/>The HKMA’s intervention to sell HKD will increase the supply of HKD and ease the<br/>tight interbank liquidity. This may help contain a rebound in HIBORs if there is a<br/>massive demand for funds to subscribe for IPO. We think the HKMA may intervene<br/>again, if the large demand for HKD to subscribe to IPOs keeps HKD near 7.75/USD.<br/>Another option for HKMA is to lower the discount rate (currently 6.25%) for banks<br/>to obtain HKD funds. This will reduce the market’s need to sell USD for buying<br/>HKD. The HKMA will then find it less necessary to sell HKD to the market.</font></p>