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International Monetary Fund backs Linked Exchange Rate system and Hong Kong's decisive actions to bolster financial stability

     The International Monetary Fund (IMF), in its Staff Report on Hong Kong released today (December 9), sets out its strong endorsement of the Linked Exchange Rate system and commends the Government¡¦s effort to safeguard financial stability.  The Staff Report confirms the assessment in the Preliminary Conclusions of the IMF Mission released on November 16, 2011.

     The IMF Mission sees the quick rebound of Hong Kong economy from the global financial crisis propelled by a solid domestic economy and deepening linkages with the Mainland.  With a weakening in external demand, the IMF Mission forecasts that Hong Kong¡¦s economic growth will ease to 5¾% in 2011 and slow further to 4% in 2012.  Consumer price inflation is projected to average 5½% in 2011 and remain in the 4-5% range throughout 2012.   

     Noting the rapid credit expansion in recent years, the IMF Mission concludes that this is not a credit-asset price cycle that would create future macroeconomic volatility.  Meanwhile, the IMF Mission considers that the regulatory authorities have continued to be forward-looking and proactive in protecting the financial system from an eventual turn in the credit cycle.  It also notes that the Government¡¦s measures on property market have helped lower transaction volumes, restrain credit to housing and protect the financial system.  

     The IMF Mission reiterates its long-standing support for the Linked Exchange Rate system, which is a simple, credible, transparent and widely understood exchange rate regime that generates substantial benefits in terms of monetary and financial stability.  The IMF Mission considers that proposals to abandon the Linked Exchange Rate system in favour of a different exchange rate arrangement are not compelling.  Furthermore, the preconditions to maintain the current system are fully in place, and the current level of the Hong Kong dollar is broadly in line with economic fundamentals.  

     Welcoming the IMF Mission's continued support for the Linked Exchange Rate system, the Financial Secretary, Mr John C Tsang, said, "We have no intention to change the system which has served Hong Kong well particularly during very volatile times.  While Hong Kong has recovered reasonably well from the global financial tsunami, we are facing increasing downside risks to the global economy.  We will remain vigilant and take all necessary measures to meet with the challenges ahead."

     The IMF Mission reckons that Hong Kong has become the premier offshore Renminbi centre with stunning progress in the development over the past year.  The recent policy steps to allow Renminbi to flow back to the Mainland such as opening the door to Renminbi foreign direct investments, permitting Mainland entities to issue dim sum bonds, introducing a Renminbi Qualified Foreign Institutional Investors scheme, and allowing investment in Mainland¡¦s interbank bond market, would facilitate further expansion, deepening, and maturation of the offshore Renminbi market.

     The Chief Executive of the Hong Kong Monetary Authority, Mr Norman Chan, said, "We welcome the IMF Mission's commendation of our countercyclical supervisory measures to strengthen the resilience of Hong Kong's banking system.  We are acutely aware of the highly volatile market conditions worldwide and are prepared to introduce appropriate and timely measures to maintain monetary and banking stability in Hong Kong.  We also welcome the IMF Mission's recognition of the encouraging developments of offshore Renminbi business in Hong Kong.  We will continue to enhance and promote Hong Kong as the preferred one-stop Renminbi business platform in the offshore market."  

     The IMF Mission visited Hong Kong from October 17 to 27, 2011 to conduct the 2011 IMF Article IV consultation discussions.  

     The IMF's Public Information Notice is attached as an 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 9, 2011
Issued at HKT 09:55


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