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IMF welcomes Government's measures to safeguard financial stability and supports Linked Exchange Rate system

     The International Monetary Fund (IMF), in its Staff Report on Hong Kong released today (December 3), welcomed the Government's efforts in maintaining financial stability and reiterated its support for the Linked Exchange Rate system.  The Staff Report confirmed the assessment in the Preliminary Conclusions of the IMF Mission released on November 18.

     The IMF Mission sees the Hong Kong economy recovering briskly with all demand components resuming a strong growth trajectory.  It projects that Hong Kong's economy will grow by 6.75% in 2010 and moderate to 5-5.5% in 2011.  Consumer price inflation is projected to reach around 5% by end-2011.   

     With Hong Kong's economic recovery more entrenched and the likely persistence of highly accommodative monetary conditions in many industrial countries, the IMF Mission envisages continued upward pressures on property prices and an accelerated credit-asset price cycle.  Nonetheless, Hong Kong remains in a strong position to guarantee financial stability in the event the cycle shifts into reverse.  The financial system has been prudently managed and is well supervised and regulated.  In addition, banks generally have robust internal risk management systems and recent regulatory measures to tighten the underwriting standards for mortgage lending will help insulate the financial system from the effects of a housing downturn.  
     Noting various policy measures in response to higher housing prices, the IMF Mission considers that the Government is much better prepared now than in any past cycle to deal with housing price pressures and safeguard financial stability.  It also considers that the rising housing price is not out of line with fundamentals.  The IMF Mission fully supports the Government's announcement of the package of anti-property speculation measures on November 19.  It considers these measures a proactive and well-calibrated response to the current upswing in the Hong Kong property price cycle.  It assesses that these initiatives will have an important impact in shifting the trajectory of the property market to a more sustainable path.

     In the light of a strong economic recovery, the IMF Mission suggests that the Government discontinue the temporary support measures in the 2011-12 Budget.  But the planned increase in infrastructure investment should continue as it will increase transportation linkages with the Mainland and strengthen Hong Kong's longer-term competitiveness.  Given the buoyant outlook for revenues, the IMF Mission expects that the fiscal position of Hong Kong will remain firmly in surplus in the coming years even with this higher level of capital spending.   

     The Financial Secretary, Mr John C Tsang, welcomed the IMF Mission's positive assessment of the Hong Kong economy.  "While Hong Kong has sound economic fundamentals, its openness makes it susceptible to the international environment, in particular the current abnormal macro-financial environment.  We have therefore recently implemented a number of extraordinary measures concerning the property market to maintain our economic and financial stability.  We will introduce further measures if circumstances so warrant in the future," Mr Tsang said.

     The IMF Mission reiterated its long-standing support for the Linked Exchange Rate system, which has proven to be an anchor of monetary and financial stability in Hong Kong, even in very difficult circumstances.  The IMF Mission's assessment is that the current level of the Hong Kong dollar is broadly in line with medium-term fundamentals.  

     The Chief Executive of the Hong Kong Monetary Authority (HKMA), Mr Norman Chan, said, "We welcome the IMF's continued support of the Linked Exchange Rate system, which has served Hong Kong well as the anchor for monetary and financial stability in Hong Kong since 1983.  We also welcome the IMF's support of the prudential measures on mortgage lending introduced by the HKMA, which are crucial to the maintenance of banking stability in Hong Kong."

     The IMF Mission reckons that Hong Kong's unique position as an international financial centre with strong links to Mainland China provides significant potential for growth and development.  This will be greatly aided by the ongoing improvements being made to transportation linkages with the Mainland.  In addition, continued efforts are needed to steadily build on Hong Kong's position as an offshore renminbi centre.  In this regard, the IMF Mission recognises the important steps that have been made over the past year and recommends that the Government continue to seek opportunities to increase the use of the renminbi as a settlement currency for trade and current account transactions, and to expand the range of renminbi investment products.  

     The IMF Mission visited Hong Kong from October 18 to 28, to conduct the 2010 IMF Article IV consultation discussions.  

     The IMF's Public Information Notice is attached as annex.  The Staff Report can be obtained from the website of the Financial Services and the Treasury Bureau ( or the IMF website (

Ends/Friday, December 3, 2010
Issued at HKT 11:21


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