Hong Kong releases up to HK$300 billion in city’s version of quantitative easing to bolster economy against downturn

Hong Kong’s monetary authority will cut its countercyclical capital buffer (CCB) by 50 basis points to 2 per cent, the first reduction since 2015

The move will release between HK$200 billion and HK$300 billion into the financial system, the HKMAs chief executive Eddie Yue said

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Anti-government protesters set fire to barricades in Mong Kok following a rally in defiance of the anti-mask law issued by the government on October 5, 2019. Photo: Edmond So

Published: 9:29pm, 14 Oct 2019Updated: 11:37pm, 14 Oct 2019

Hong Kong’s monetary authority said it would cut the amount of capital that banks need to set aside, in the first reduction of the ratio since 2015 to release cash into the financial system to bolster it against any impact from political risks and the city’s unprecedented civic unrest.

The city’s countercyclical capital buffer (CCB) will be reduced to 2 per cent effective immediately, from the previous 2.5 per cent, according to a statement by the Hong Kong Monetary Authority (HKMA).

“Economic indicators and other relevant evidence have signalled that the economic environment in Hong Kong has deteriorated significantly since June 2019,” the monetary authority’s Chief Executive Eddie Yue said. “Lowering the countercyclical capital buffer at this juncture will allow banks to be more supportive to the domestic economy and help mitigate the economic cycle.”

The cut will release between HK$200 billion and HK$300 billion (US$38 billion) into Hong Kong’s economy, according to Yue’s blog. The local economy is on track towards a technical recession in the fiscal third quarter ending in December, as four months of street protests had driven away visitors, crimped retail sales and cause property prices to slide.

The HKMA defines its buffer as a mechanism to build up additional capital during periods of excessive credit growth when risks of system-wide stress are observed to be growing markedly. This capital can then be “released” when the credit cycle turns to absorb losses and enable the banking system to continue lending in the subsequent downturn, according to its website.

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