Chan Ka-keung calms fears of higher rates after cut in Fed bond purchases

Secretary for financial services says the US central bank would have to wait until year end before deciding next move despite cut in bond buying

PUBLISHED : Friday, 20 June, 2014, 12:59am
UPDATED : Friday, 20 June, 2014, 8:48am

Homeowners do not have to worry about a sudden surge in interest rates, which would further hit an already ailing property market after the United States Federal Reserve's move to further reduce its bond-buying programme, a minister said yesterday.

"The Federal Reserve has always indicated it would not increase interest rates in the near term. This is the message it gives to the market. This is why global markets remain calm," Chan Ka-keung, the secretary for financial services and the treasury, said at the sidelines of a conference.

"The Fed would need to wait until the end of this year or early next year to assess data about inflationary pressures and other factors before it decides its next step forward," Chan said.

What the Fed is doing is within our expectation. This is [its] exit strategy

The Hong Kong dollar is pegged to the US dollar so the city's interest rates follow those of the US.

The Fed on Wednesday continued with the phasing out of its stimulus programme by cutting its monthly bond purchases by another US$10 billion.

The Fed has been winding down its bond buying since January and most markets have been mulling when it would begin raising interest rates as the economic recovery takes hold.

The low interest rate environment has led to hot money flowing into stocks or overseas markets such as Hong Kong. Winding down the policy could reverse the capital flows.

Chan played down those fears.

"What the Fed is doing is within our expectation. This is the exit strategy it has announced for the government to withdraw from the market in an orderly way," he said.

The Fed statement also cut its growth forecast for the world's biggest economy to 2.2 per cent this year from the 2.9 per cent it made in March.

"The overall global economy has slowed and Hong Kong has felt the heat," Chan said, adding the local economy had slowed last year and in the first quarter of this year.

"However, the problem is more with Europe than the US, whose recovery is better than European economies."

A Bank of China (Hong Kong) report said low interest rates would support US stocks, and any rate rises were likely to happen a year from now.

Separately, Chan said he was open-minded about suggestions by the Financial Services Development Council to reform the initial public offering market or to create ways for firms to list with special shareholding structures.

"Hong Kong is an international market so we have to be open-minded on how to reform it. I agree with the FSDC to let the regulators get the public's view on how to allow companies with different corporate structures to list here. Having a separate board would be an option but this would need more discussion by the public," he said.