Calls For Removal Of Dollar Peg In Hong Kong Continue

by Mary Swire, Tax-News.com, Hong Kong

28 October 2002

Investment house, AMP Henderson Global Investors has called for the peg between the Hong Kong and US dollars to be removed, arguing that the link is having a significant adverse effect on the SAR's already shaky economy.

AMP Henderson's forecast for the region is for inflation of -2.5% in 2002, and -2% in 2003, and for GDP growth of 1.8% and 2.5% for the respective years.

Speaking to the Hong Kong Standard on Friday, Dr Shane Oliver, the investment house's head of strategy and chief economist explained why AMP Henderson has issued such a gloomy forecast:

'With deflation, consumers will hold off on buying goods if they think they can get them cheaper tomorrow so it delays spending. Deflation goes back to the currency peg which is having an adverse effect on Hong Kong's economy.'

He continued: 'Countries that do fix their currencies to the US dollar do so because of an inflation problem and I see no case for a peg here as Hong Kong suffers from deflation.'

Speaking with regard to Standard & Poors' decision last week to downgrade the jurisdiction's long-term local currency rating from stable to negative, Dr Oliver observed that: 'There's not much you can do about a ratings downgrade in the short term. The government should focus on reforming its long term policy in terms of reducing its budget deficit.'

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