Norman Chan Tak-lam, the Hong Kong Monetary Authority's CEO, is cautious about risks related to the tough global economic conditions facing the city, as well as the local real estate bubble.
"The economic signal is mixed," said Chan. "On the one hand, Hong Kong's economy may be affected by the economic downturns in the United States and Europe. On the other hand, the property market is showing signs of overheating."
In an exclusive interview with the South China Morning Post, Chan said he was worried that the city's economy would be affected by the euro-zone sovereign debt crisis and the economic slowdown on the mainland and in the US.
"Four years after the global financial crisis, we have seen the US government do a lot to boost the economy, but that has yet to bring back strong economic growth," Chan said.
At the height of its recession, the US lost seven million jobs, and two million to three million Americans remain unemployed.
The US jobless rate of 8.2 per cent in June improved from 9.7 per cent in January 2010, but it topped the 5 per cent level in early 2008.
The euro zone's financial crisis is also showing no signs of a rapid recovery. On the mainland, Beijing has lowered its forecast of economic growth for this year to 7.5 per cent, down from last year's 8 per cent clip.
In Hong Kong, more than 230 listed firms have issued profit warnings this year, signalling an economic slowdown, according to Chan.
"All these signals are not good, but we cannot loosen our grip on mortgage lending because the city's real estate market remains red hot," he said.
Since Chan became the HKMA's chief in October 2009, he has tightened mortgage policy four times. Property transactions and housing values subsequently declined, but they were on the rebound in February.
In June last year, the HKMA reduced banks' maximum amount of housing loans for properties valued at more than HK$10 million by 10 percentage points to 50 per cent of their value.
For properties worth HK$7 million to HK$10 million, the loan-to-value ratio was lowered to 60 per cent, from 70 per cent.
Since then, developers and investors have been urging the HKMA to ease its policy as investment inflows slowed amid the global economic downturn.
Hong Kong's stock market, for instance, has seen a 20 per cent fall in its average daily turnover of about HK$56.5 billion in the first half of this year from last year.
"What I can say is that there are uncertainties in both our economy and our property market," Chan said.
"The HKMA has to closely monitor the situation and make changes when necessary."
A prudent monetary policy is required to prevent banks from taking too many risks when the property market is facing a potential downturn, Chan said.