Latest US easing prompts HKMA inflation warning

The latest round of US monetary easing has put Hong Kong's de facto central bank on high alert over the outlook for inflation as the prospect of more speculative money finds its way into the city's economy.

The Hong Kong Monetary Authority warned investors about potential rising investment risks amid what it called an "abnormal" economic environment.

As widely expected, the US Federal Reserve on Wednesday announced at the conclusion of its final policy meeting for the year that it would conduct more outright asset purchases, increasing the amount of money it will pump into the US economy each month to US$85 billion from the US$40 billion announced in September.

"The expanded US quantitative easing policy would cause more capital inflows into emerging markets, including Hong Kong," said HKMA chief executive Norman Chan Tak-lam, who was on an annual visit to Beijing with a delegation of the Hong Kong Association of Banks. "We will see bigger challenges in inflation and the asset market.

"Investors should be more cautious amid the 'abnormal economic conditions' and rising uncertainties."

Chan said the authority would intervene in the money markets if capital inflows into the Hong Kong dollar continued. "The HKMA has the ability to buy an unlimited amount of US dollars to maintain currency stability."

The authority stepped into the currency market again on Wednesday, selling HK$11.664 billion as the local currency repeatedly hit the strong end of its trading range.