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Hong Kong: Hong Kong's currency peg is not a problem for Hong Kong's economy and the US dollar remains the best anchor for the Hong Kong dollar, Joseph Yam, head of the Hong Kong Monetary Authority (HKMA), said on Friday.
"The US dollar is the appropriate anchor for Hong Kong," Yam told a financial conference.
Economists say Hong Kong's peg to a weak US dollar, at a time when the Chinese yuan is steadily appreciating, could exacerbate inflation in the city by making imports more costly and trigger an asset bubble.
That has led to recent speculation that Hong Kong might have to abandon the peg, known as the linked exchange rate system.
"There's a view that everything in Hong Kong can be blamed on the linked exchange rate system and a weak exchange rate will lead to inflation. That's the theory but we need to look at the facts," Yam said.
A 10 per cent appreciation in China's yuan would result in only a 0.4 per cent increase in prices in Hong Kong, he said, because only 9-17 per cent of the territory's retained imports come from mainland China.
Labour productivity, which has been growing by about five per cent a year in the past four-five years, was also dampening inflation, he said.
Underlying annual inflation is tame at less than three per cent but analysts see it reaching four per cent next year and say it risks creating an asset market bubble by encouraging investment in the stock market.
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