July 26, 2022
HONG KONG – Hong Kong huge foreign exchange reserves and other financial advantages have laid a solid foundation for the city to maintain its linked exchange-rate system with the US dollar, despite recent concerns over capital outflow caused by US interest rate hikes, Financial Secretary Paul Chan Mo-po wrote in his blog on Sunday.
Hong Kong’s economic recovery will continue to face challenges in the second half of the year, as expected interest-rate hikes of the US Federal Reserve and other central banks may affect the global economy and capital flows, leading to volatility in financial markets, Chan said.
Financial Secretary Paul Chan Mo-po said he believes that Hong Kong’s vast foreign exchange reserves, sound financial policies and a number of other financial advantages will give it sufficient capacity to weather the potential turbulence
But he said he believes that the city’s vast foreign exchange reserves, sound financial policies and a number of other financial advantages will give it sufficient capacity to weather the potential turbulence.
Hong Kong has not only established a stable and strong public finance system and an efficient financial risk monitoring mechanism, but also developed a strong buffer capacity in its financial and banking system throughout the years, Chan said.
“Hong Kong’s huge foreign exchange reserve of over US$440 billion, which is equivalent to about 1.7 times the monetary base of the Hong Kong dollar, ample liquidity in the financial and banking system, stable banking operations and high-quality assets — all of these are solid foundations for maintaining the linked exchange rate system,” he said.
Further interest rate hikes in the US would inevitably affect capital flows and cause changes in asset prices in the Hong Kong market, with investors selling Hong Kong dollars and buying US dollars in order to earn high returns from holding the greenback, he said.
The Hong Kong Monetary Authority has intervened in the foreign exchange market in recent months, buying more than HK$170 billion ($21.7 billion) to stabilize the currency as of July 22, reducing the balance of the banking system to approximately HK$165 billion, he said.
Chan also noted that Hong Kong’s job market has seen improvement, with the jobless rate dropping 0.7 percentage points from the February-to-April period to 4.7 percent in the April-to-June period.
But he said he expects that latest export figures to be released this week will not be promising due to the weak global and mainland economy. Although better GDP figures in the second quarter, which will be released early next month, are expected, it could still be far from satisfactory, he said. Hong Kong’ economy shrank by 4 percent year-on-year in the first quarter.
Chan also cautioned that Hong Kong people should adopt a prudent strategy when they make home purchasing and other investment decisions, as the city’s entering into the cycle of interest rate hikes following the US will inevitably lead to higher mortgages, increasing their financial burden.