FS WARNS ABOUT EXTERNAL RISKS

Financial Secretary Paul Chan today said citizens should beware of external risks arising from the recent interest rate rise.

The US Federal Reserve raised the interest rate by 75 basis points, the largest increase since 1994. Meeting the media today, Mr Chan said: “This substantial hike is in line with recent market expectations, because the inflation rate in the US is very high, about 8.6%. This high inflation rate will be there for quite some time. So the US will continue to increase its interest rate and also reduce the size of its balance sheet. So, the impact from a global standpoint would make the economic situation externally deteriorating, perhaps making it difficult, more difficult for us, in terms of our exports.”

In Hong Kong, following the 75-basis point upward adjustment in the target range for the US federal funds rate, the Monetary Authority announced that the Base Rate was adjusted upward to 2% with immediate effect according to a pre-set formula.

Given the interest rate gap between the US and Hong Kong, there would be market activities to take advantage of the difference, but this should not be a cause of worry, he said.

“As we have seen in the past two months, there has been capital flowing out from the Hong Kong market, but this does not require any worry, because under the Linked Exchange Rate System, this is a natural move and we have a very strong buffer. At the moment, we have over $280 billion in our interbank balance.”

Rather, people are advised to watch out for external risks and asset prices.

“For some of the emerging markets whose economic fundamentals are not as strong, they may be subject to additional risks and there would be increased volatility in the financial market.

“Given the rising interest rate, asset prices may be affected. So for people who want to take out mortgage loans, who want to invest in different classes of assets, do pay attention.”

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