Hong Kong’s dollar declined for a fourth day amid concern the city’s monetary authority won’t act to support the currency.

The Hong Kong dollar fell 0.05 percent to HK$7.8194 against the greenback as of 10:13 am local time, its weakest level in three months.

The exchange rate has depreciated 0.2 percent – a steep drop for the pegged currency – since the Hong Kong Monetary Authority said last Thursday said it has no plans to sell additional debt.

Extra sales would effectively drain liquidity, thereby providing support to the local currency.

This March 2, 2009 photo shows HSBC HK$100 banknotes in Hong Kong. (MIKE CLARKE / AFP)

HKMA Chief Executive Norman Chan said last week it wasn’t true that the de facto central bank wants to prevent the local dollar from reaching the weak end of its band with the greenback. Such a move is a necessary part of rate normalization, he said.

When the exchange rate reaches the weak side of its HK$7.75-HK$7.85 band, the HKMA has to buy the local currency.

"Weakness should continue until the HKMA start to drain local liquidity again," said Kevin Lai, Asia ex-Japan chief economist at Daiwa Capital Markets Hong Kong Ltd.

The HKMA has issued two batches of additional Exchange Fund Bills since August. While the monetary authority said it was responding to demand from banks flush with cash, some analysts said the moves were aimed at narrowing the gap between local and US interbank rates.