band@ (Adds HKMA response)
HONG KONG, April 12 (Reuters) - Hong Kong's de facto central bank on Thursday bought HK$816 million ($103.95 million) in Hong Kong dollars from the currency market, its first intervention since 2015, as the local currency hit the weaker end of its trading range.
The Hong Kong dollar touched the lower end of the central bank's trading band target as the interest rate gap between the greenback and the local currency widened further.
As the former British colony pegs its currency to the dollar, its money market rates mirror those of its U.S. counterparts.
The gap between the two has widened since the 2008 financial crisis, as the U.S. central bank has started raising interest rates while Hong Kong's markets remained flush with excess cash.
According to the Hong Kong Monetary Authority (HKMA), the latest intervention will reduce the aggregate balance - the sum of balances on clearing accounts maintained by banks with the authority - to HK$178.96 billion on April 16, when the withdrawn funds will be settled.
The HKMA confirmed that it was the first time since the trading band was set in 2005 that the weak-side convertibility undertaking (CU) at 7.85 was triggered, adding it was triggered during London trading hours.
"I reiterate that the HKMA will buy Hong Kong dollar (HKD) and sell USD at 7.85 level to ensure that the HKD exchange rate will not weaken beyond 7.8500. Such operations are normal and in accordance with the design of the Linked Exchange Rate System," Norman Chan, chief executive of HKMA, said in a statement.
The Hong Kong dollar is pegged at 7.8 to the U.S. dollar, but can trade between 7.75 and 7.85. Under the currency peg, the HKMA is obliged to intervene when the Hong Kong dollar hits 7.75 or 7.85 to keep the band intact.
The currency traded at 7.8499 against the U.S. dollar at 1208 GMT.
"Depending on capital flows, the weak-side CU may be triggered again in the future," Chan said. "The HKMA is fully capable of maintaining the stability of the HKD and managing large scale capital flows. There is no need to be concerned."
In early March, the HKMA said it was confident Hong Kong could deal with volatile asset markets and challenges arising from capital outflow.
The Hong Kong money market remains awash with liquidity due to equity market inflows and remnants of money printing from global central banks.
The HKMA last intervened in the market in 2015, selling Hong Kong dollars as the local currency repeatedly hit the strong end of its trading band. ($1 = 7.8496 Hong Kong dollars) (Reporting by Donny Kwok and Twinnie Siu; Additional reporting by Meg Shen; Editing by Anne Marie Roantree, Sam Holmes and Alison Williams)