HK’s new monetary authority head vows to maintain stability

Bloomberg

Hong Kong has appointed a veteran central banker as the next chief executive of its monetary authority, signalling continuity remains the priority as the city faces ongoing political turmoil.
While the social unrest over the government’s botched extradition bill won’t be Eddie Yue’s responsibility, and may even have dissipated by the time he takes office in October, maintaining the territory’s reputation for financial stability will be. He will face risks ranging from a resurgent property market to intermittent sniping against the city’s currency peg to the dollar.
“Together with my colleagues at the Hong Kong Monetary Authority, we’ve been through a lot of testing times,” Yue said at a press conference announcing his new position. “I hope that these valuable experiences will guide me through the challenges that lie ahead.”

Dollar Link
The dollar peg has been the bedrock of Hong Kong’s status as a financial hub, a fact that will bear repeating amid the street demonstrations and violence that has marked the past couple of months.
Authorities have intervened to defend it consistently over the years, and have recently pushed back against renewed attacks by Hayman Capital Management founder Kyle Bass.
The Hong Kong dollar’s peg is officially set at 7.80 per dollar, but the currency is allowed to trade 5 cents to either side. The Hong Kong Monetary Authority keeps a reserve pile of around $445 billion to maintain it.
“Hong Kong’s peg to the US dollar has gained attention from time to time over the past 30 years, while the system has been intact through various economic and political events such as the handover, the Asian financial crisis and the global financial crisis,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group Ltd. “What the HKMA needs to do is to repeat what they have been doing to reassure confidence towards the peg, which will unlikely be changed.”

Policy Powerlessness
Because its currency is pegged to the dollar, the Asian financial hub effectively imports US monetary policy and adjusts borrowing costs in line with the Fed.
That means that if the US is entering an easing cycle or even just holding rates lower, Hong Kong will face the risk that low borrowing costs keep inflating what is already the world’s most expensive property market.
The failure of Hong Kong’s government to keep homes affordable has already fed into social discontent, and may continue to do so for the foreseeable future.
The US Federal Reserve is poised to cut rates on July 31 for the first time since 2008, amid a global slowdown. In Hong Kong, property prices more than doubled in the past decade even after incumbent Norman Chan introduced stringent stress tests on home buyers and less generous mortgages.