Hong Kong: Strong economy but a weak currency, even against the dollar - Natixis

Alicia Garcia Herrero, Chief Economist at Natixis, explains that the strong momentum in Q1 was carried on to Q2 as the Hong Kong’s economy grew 3.8% year-on-year, beating market expectations again and prompting the Hong Kong government to revise its GDP growth projections upward to between 3 percent and 4 percent in 2017.

Key Quotes

“The property market seems to have reached a “wait and see” attitude after very fast price increases. After renewed tightening measures, the number of transactions fell by over 2000 units in July but the seemingly cooling market failed to bring down purchase or rental prices.”

“Regarding financial conditions, HKD touched its historical low on Aug 7 since January 2016 pushed by large interest rate differential against the USD (a very weak HIBOR with respect to LIBOR). This automatically triggered the HKMA sale of Exchange Fund Bills, following the rules supporting Hong Kong’s currency board. The announcement managed to strengthen the currency temporarily but already on Aug 9, the HKD reverted back to its depreciation trend as the interest rate differential has not really narrowed.”