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An International Monetary Fund (IMF) Staff Mission to Hong Kong has given a strong endorsement of the Linked Exchange Rate system and the Government's policy framework to support growth and safeguard financial stability.
The assessment was made in the Preliminary Conclusions of the IMF Mission published today (November 16), following the 2011 Article IV consultation discussions.
The IMF Mission considers that Hong Kong's dynamic and compelling rebound following the global financial crisis is underpinned by its concerted policy efforts, flexible economic system and strong up-drafts from Mainland China. With external demand weakening, the IMF Mission projects that Hong Kong's economic growth will ease to 5.75 per cent in 2011 and moderate to 4 per cent in 2012.
The IMF Mission commends the Government's measures in the property market, which have been effective in lowering transaction volumes, restraining credit for housing and preserving the health of the banking system. It also considers that the regulatory authorities have been forward-looking and proactive in protecting the financial system from an eventual turn in the credit cycle.
The IMF Mission considers that the Linked Exchange Rate system remains the best option for Hong Kong as it is a simple, credible and effective exchange rate regime, and as such merits continued support. It points out that proposals to abandon the currency board and repeg the Hong Kong dollar to a basket of currencies or pursue some form of crawling peg are ill-conceived, as such changes would give Hong Kong no more monetary autonomy but would sacrifice the benefits of monetary and financial stability that have been hard-won over the past 28 years. The IMF Mission continues to find the current level of the Hong Kong dollar to be broadly in line with economic fundamentals.
The Financial Secretary, Mr John C Tsang said, "We welcome the IMF Mission's view that the Linked Exchange Rate system continues to be the most appropriate exchange rate arrangement for Hong Kong. We are also pleased that the IMF Mission has given a positive assessment on Hong Kong, having regard to our sound economic fundamentals and effective economic policy framework. We will keep a close watch over global developments and take appropriate measures against any possible adverse events."
The Chief Executive of the Hong Kong Monetary Authority (HKMA), Mr Norman Chan, said,"We welcome the IMF's endorsement of the countercyclical supervisory measures taken by the HKMA to enhance the risk management and robustness of Hong Kong's banking system, including the four rounds of tightening of banks' mortgage underwriting standards and a requirement for banks to maintain higher levels of regulatory reserve. We shall remain vigilant and prudent while the external environment has become increasingly uncertain. We stand ready to deploy appropriate measures as necessary to protect monetary and banking stability in Hong Kong."
Noting the encouraging development of offshore Renminbi business in Hong Kong, the Mission considers that the policy steps to allow Mainland non-financial institutions to issue dim sum bonds, create a Renminbi Qualified Foreign Institutional Investors scheme, and open the door to Renminbi foreign direct investments (RFDI) are facilitating the further expansion, deepening, and maturation of the offshore Renminbi market in Hong Kong. It also notes that the increase in RFDI flows will facilitate an expansion of Renminbi credit, resulting in more balanced Renminbi assets and liabilities in the banking system.
The IMF Mission visited Hong Kong from October 17 to 27 this year for the 2011 Article IV Consultation with the Hong Kong Special Administrative Region. It held discussions with government officials and private sector representatives.
The Preliminary Conclusions of the IMF Mission are attached at annex. The full report of the Article IV consultation will be discussed by the IMF Executive Board in late November.
Ends/Wednesday, November 16, 2011
Issued at HKT 12:50
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