Hong Kong’s central bank has intervened to strengthen the city’s currency and defend its US dollar peg for the first time since 2019, threatening to raise borrowing costs while the financial hub’s economy is still reeling from harsh Covid-19 restrictions.

The Hong Kong Monetary Authority announced on Thursday that it had bought almost HK$1.6bn (US$202mn) to shore up the Hong Kong dollar after it fell to the lower limit of HK$7.85 against the greenback during New York trading hours on Wednesday.

Officials in Hong Kong had expected the currency to test the weak end of its trading band, with HKMA chief Eddie Yue noting this month that the recent weakening of the exchange rate was the result of higher US interest rates, which had led to “capital outflow from the city”.