Hong Kong solid enough to cope with volatile capital flow after US rate rise: John Tsang

Financial Secretary John Tsang Chun-wah says it is hard to predict how the Fed’s decision to raise the US interest rate last week will affect Hong Kong, but the city’s financial system is solid enough to overcome any volatile capital flow.

In his weekly blog , Tsang says Hong Kong, which is vulnerable to overseas economic situations, should closely monitor whether asset prices are volatile and, if so, whether this will hurt appetite for shopping and investment.

The US raised its interest rate a quarter percentage point last week, the first increase in a decade, sparking what Tsang described as “worries or concern” on the city’s economic prospects.

He cited that Hong Kong saw mixed reactions to three rounds of interest rate increases in 1994-1995; 1999-2000 and 2004-2006.

The Hang Seng benchmark index slipped in the six months after the rate rise in 1994-1995 but not the other round in 1999-2000, which means the city’s economic health does not necessarily turn sour as a result, he said.

“This shows the reactions of higher interest rates to economic and financial markets are hard to predict,” he said. “The US interest rate is only one factor affecting the global economy.”