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Following is a question by the Hon Frederick Fung Kin-kee and a written reply by the Financial Secretary, Mr John C Tsang, at the Legislative Council meeting today (April 21):
Question:
It has been reported recently that there is widespread news about the expected appreciation of Renminbi ("RMB"), pointing out that the mainland government will adopt a more flexible exchange rate policy by way of widening daily trading range for the exchange rate of RMB to allow gradual appreciation of RMB; and the mid-rate of RMB's exchange rate against the United States ("US") dollar has repeatedly reached record high since last year, and the three-month and one year Non-deliverable Forwards on the exchange rate of RMB against the US dollar had for one time increased by 1% and 3% respectively. There have even been comments that RMB is expected to appreciate by 3% to 4% and by a total of 5% within a year. Focusing on the aforesaid reports and the exchange rate situation of RMB, will the Government inform this Council:
(a) whether the authorities have communicated with the relevant mainland departments and studied its exchange rate policy on RMB; if they have, of the details; if not, the reasons for that;
(b) whether it has assessed the impact of RMB's appreciation on the Hong Kong economy (including the overall economic situation, the flow of money, asset price, the Linked Exchange Rate system and inflation, etc.); if an assessment has been conducted, of the outcome; whether the authorities will consider revising upward the forecast on the average underlying inflation rate of 1.5% for this year as a whole; and
(c) given that members of the public from the lower and middle classes mainly rely on cheaper food items and daily necessities imported from the Mainland to maintain their living standard, whether the authorities have assessed the impact of RMB's appreciation at different rates on their livelihood; whether the authorities have formulated any new measures, so as to assist them in coping with the pressure of rising prices of goods; if they have, of the details; if not, the reasons for that?
Reply:
Mr President:
(a) The Hong Kong Monetary Authority (HKMA) has discussions and exchange of views with relevant Mainland authorities on issues of mutual concern from time to time. However, it is not appropriate to disclose relevant details.
(b) The exchange rate of RMB against the US dollar appreciated progressively by over 20% from mid-2005 to mid-2008. During the period, though some firms faced with larger upward cost pressure, the Hong Kong economy as a whole had adapted to the development rather well. The RMB appreciation did not lead to strong inflationary pressure in Hong Kong, and also did not affect other economic activities in any significant way.
Changes in the RMB exchange rate do not necessarily affect movements of Hong Kong dollar funds. As shown in 2005 after the reform of the RMB exchange rate regime, the Hong Kong dollar continued to fluctuate within the Convertibility Zone of 7.75 to 7.85. This shows that Hong Kong fund flows are affected by a host of factors.
According to research done by the HKMA, while an appreciation of the RMB will lead to an increase in the prices of goods imported from the Mainland, the impact on the overall inflation in Hong Kong is likely to be modest. Specifically, a 10% appreciation of the RMB against the US dollar would only increase Hong Kong's Composite Consumer Price Index inflation rate by about 0.5%.
Actually, consumer price inflation in Hong Kong is driven by many factors, including the aggregate supply and demand situation in the local economy, movements of flat rentals, exchange rate factor, and price trend of food in the international markets. With regard to the impact of exchange rate on Hong Kong's inflation, while the nominal effective exchange rate of Hong Kong dollar dropped by about 4% in January and February combined from a year earlier, inflation in Hong Kong had so far remained rather modest.
For the forecast on inflation in 2010 as a whole, the Government will, as a usual practice, review the forecast on a quarterly basis considering such factors as the prevailing economic situation and relevant price movements. The results of the next round of updating will be announced on May 14.
(c) The Government is very concerned about the impacts of inflation on the livelihood of Hong Kong people. Indeed, the Budget for this financial year has already taken into account the considerable burden that rising inflation may inflict on the lower income groups. To alleviate the burden on the Hong Kong people, the Budget announced a series of one-off relief measures amounting to around HK$20 billion. In particular, the exemption of public housing rents for two months and the waiving of rates can lower the headline consumer price inflation this year by about one percentage point. In addition, the payments of an extra month of CSSA Allowance, Old Age Allowance and Disability Allowance are also special measures to assist the less advantaged groups to cope with the impact of rising inflation.
Ends/Wednesday, April 21, 2010
Issued at HKT 12:38
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