Steady as she goes for next Fed chief Janet Yellen
Hong Kong should not expect the US Federal Reserve to deviate from its policies with the nomination of Janet Yellen to be Fed chairwoman, analysts say.
Nominated by US President Barack Obama on Wednesday, Yellen, the first woman ever to lead the Fed and a long-time supporter of chairman Ben Bernanke's quantitative easing and low interest rate strategy, is expected to follow the timetable for gradual tapering - with one eye on US unemployment data.
"Her appointment would ensure continuity with Bernanke's policies and in that sense will make only a marginal difference," said Stephen Schwartz, chief Asia economist for BBVA.
Hong Kong still needed to brace itself for QE tapering and its impact on financial markets and regional growth, he said, predicting that tapering would begin in December or January.
Tapering refers to a reversal of the Fed's aggressive bond-buying strategy, which started in the aftermath of the global financial crisis and helped bring down borrowing costs with a view to boosting the US economy. Combined with historically low base interest rates, cheap money subsequently flowed into the global economy and helped drive up asset prices, especially in Asia.
Local stock markets got a taste of what tapering would look like in May when many bourses dropped 20 per cent and liquidity tightened on fears it was imminent. With the Hong Kong dollar pegged to the US, any change in US lending rates will be immediately felt in the city.
Tim Condon, of ING Financial Markets, said the Hong Kong Monetary Authority was "probably the only central bank happy when Bernanke talked about tapering", because it would aid the goal of lowering property prices. The best one could hope for was a gradual taper giving markets time to adjust.
Additional reporting by Agence France-Presse