Hong Kong Monetary Authority Chief Executive Eddie Yue Wai-man on Monday reiterated a commitment to maintaining the city’s Linked Exchange Rate System (LERS), saying it plays a vital role in ensuring Hong Kong’s currency stability.
Due to increasing uncertainties in the external environment, there are concerns over whether Hong Kong’s currency peg to the US dollar is the most suitable system for the city or not, he said during the Panel on Financial Affairs of the Legislative Council.
Noting a consensus from the International Monetary Fund and professional analysts for maintaining the LERS, Yue said the authority has no intention to change the system.
The LERS, introduced in 1983, has been a cornerstone of Hong Kong’s monetary stability for decades. From the Asian financial crisis in the late 1990s to the global financial tsunami of 2008 and the recent economic challenges posed by the COVID-19 pandemic, LERS has consistently provided a stable monetary framework for Hong Kong.
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Yue also said the authority will carefully monitor the recently announced US tariff policy and its effect on the global economy, inflation and financial markets.
Over the weekend, US president Donald Trump put a 25 percent tax on imports from Mexico and Canada, as well as an additional 10 percent levy on China.
The most important work of the Hong Kong Monetary Authority lies in ensuring the city’s financial stability, Yue said. While Hong Kong’s financial system has buffers and great resilience to counter shocks, including over HK$4 trillion in foreign exchange reserves to support the LERS, he also stressed the importance of raising vigilance, monitoring the market and having a good contingency plan to cope with changes.
Yue said he believes that an array of measures announced by the central government aimed at spurring domestic demand and consumption will continue to benefit Hong Kong’s economy, and could act as a hedge against risk from the volatile external environment.
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He also said that interest rates will continue to move on a downward trajectory, but the magnitude and pace will depend on the inflation rate.
Carie Li, global market strategist at Global Financial Markets, DBS Bank (Hong Kong) said, “Although last week the US Federal Reserve Chair Jerome Powell reminded the market not to over-interpret the changes in the wording of the meeting statement, the market still expects the Fed to cut interest rates fewer times this year than other major central banks, including the European Central Bank and the Bank of Canada, which cut rates last week”.
