HK welcomes IMF\'s support for linked exchange rate

Hong Kong\'s Financial Secretary John Tsang Wednesday welcomed the International Monetary Fund (IMF) Mission\'s view that the linked exchange rate system continues to be the most appropriate arrangement for Hong Kong. An IMF Staff Mission to Hong Kong has reaffirmed the fund\'s long-standing support for the linked exchange rate system, and commended the city\'s government for its proactive policies to support growth and preserve financial stability. \"We are glad the IMF Mission supports our economic and financial policies in addressing potential global shocks and the considerable uncertainties in the external environment. \"The government will continue to adopt proactive and suitable measures, including through the provision of counter-cyclical fiscal support to the economy as warranted,\" Tsang said. The assessment was made in the Preliminary Conclusions of the IMF Mission published on Wednesday, following the 2012 Article IV consultation discussions. The IMF sees global economic weakness is impacting Hong Kong, but domestic demand is resilient owing to a supportive fiscal stance and continued strength in the labor market. With the drag from net exports abating next year, the mission projected Hong Kong\'s economic growth will increase from 1.25 percent this year to about 3 percent in 2013. The key risks of potential global shocks include a renewed intensification of the Euro area crisis and the U.S. fiscal cliff. The mission considered the property sector the main source of domestic economic risk in Hong Kong, though the probability of a correction large enough to generate major macroeconomic and financial consequences is fairly low in the near term. The mission commended the government for its various macro-prudential measures to help safeguard the banking system, while noting that the recently adopted buyer\'s stamp duty and extension of the special stamp duty should help dampen housing demand. The mission also noted that Hong Kong is benefiting from ongoing financial integration with the Mainland and should continue to build on its comparative advantage. The authorities should continue to develop the RMB financial infrastructure to capture the opportunities provided by the opening of the Mainland\'s capital account and the expanded international use of RMB. Hong Kong Monetary Authority Chief Executive Norman Chan also welcomed the mission\'s continued support for the linked exchange rate system. \"We are pleased to note the IMF\'s endorsement of our counter-cyclical prudential measures on mortgage lending. These measures have strengthened banks\' risk management and ability to withstand a possible shock of a significant correction in the property market,\" he said. The IMF Mission visited Hong Kong from Nov. 7 to 16 for the 2012 Article IV Consultation with Hong Kong. It held discussions with government officials and private sector representatives. The full report of the Article IV consultation will be discussed by the IMF Executive Board in January 2013.