HKMA chief defends foreign money peg, says it introduced stability

Hong Kong Financial Authority’s chief government has defended Hong Kong’s foreign money peg, saying it helped see town by means of a few of its hardest financial challenges. 

In an interview with CNBC on Tuesday, Eddie Yue who leads Hong Kong’s de facto central financial institution, mentioned sustaining a steady alternate price by means of the calibration of rates of interest continues to be paramount to Hong Kong.

The foreign money peg “is definitely doing Hong Kong nice when it comes to offering the wanted alternate price stability, particularly by means of the cycles and in periods of uncertainty,” Yue mentioned.

“Hong Kong is a really small open financial system with an externally oriented nature. So having a steady alternate price is essential for us. However after all [with] any financial coverage, there will likely be commerce off.” 

The Hong Kong greenback has been pegged to the U.S. greenback since 1983, and trades inside a slender vary of seven.75 to 7.85 Hong Kong {dollars} in opposition to the buck. The HKMA intervenes when the Hong Kong greenback wanders outdoors the accepted vary.

It could be as much as the federal government to stimulate financial development whereas the HKMA focuses its financial insurance policies on steadying the Hong Kong greenback in opposition to the buck. 

“And the commerce off for Hong Kong is that we’ll not use rates of interest to calibrate financial development and that must fall totally on the opposite insurance policies of the federal government, together with fiscal coverage, for instance,” he added.

The U.S. Federal Reserve’s aggressive rate of interest hikes this yr have pressured up the greenback in opposition to Hong Kong’s native foreign money, prompting a capital flight out of Hong Kong. 

The HKMA has since raised rates of interest 5 occasions this yr and earlier this yr, purchased Hong Kong {dollars} to stabilize the foreign money. 

Regardless of rising rates of interest, Yue mentioned the financial system was on monitor as the federal government carried out methods to drive demand by means of consumption vouchers, and monetary help for small and medium enterprises.

Hong Kong’s eventual opening would attract vacationers and extra spending, Yue mentioned, however he warned this is able to come at a time when there could be recent headwinds from a softening international financial system. 

Yue mentioned he is assured the rise in rates of interest will not harm debtors, notably these with mortgages. The default ratio was additionally low at 0.05% and mortgage to deposit ratios are on common solely 50%, he mentioned. 

“So even when there ought to [sic] be any correction within the property value, or if there needs to be a rise in rates of interest … I feel the affect on mortgages will likely be fairly manageable,” he mentioned.

The Covid-19 pandemic, the departure of expertise and now larger rates of interest are placing downward pressures on home costs. 

Funding financial institution Goldman Sachs mentioned earlier this month that Hong Kong’s residence costs would decline one other 30% from final yr’s ranges, as rates of interest proceed to rise.