The Hong Kong government's immediate task was to address the impact of inflation on the public, Chief Executive Donald Tsang said on Thursday (Jan 14), adding the government would monitor the situation and introduce relief measures if necessary.
During a question-and-answer session with lawmakers in the city's Legislative Council, Tsang said public resources should be used in an effective way and should be allocated to areas which will sharpen Hong Kong's overall competitiveness, improve people's livelihood, promote social mobility and help the disadvantaged.
Fiscal reserves accumulated in good times should also be used appropriately, he said.
"We will be on guard against inflation in the coming year, and we will seize the opportunity to promote economic growth which will generate stable tax revenue," Tsang said.
"I am confident we can tackle the inflation problem and my team will deal with the issue wholeheartedly and find ways to minimize its impact on the public, particularly the grass-roots."
Tsang also said the local equity and property markets faced the risk of forming bubbles as the territory is buffeted by the effects of quantitative easing measures taken by overseas jurisdictions.
When asked whether the city's government will tackle the inflation issue by changing the linked exchange rate system, Tsang said pegging Hong Kong's currency to the U.S. dollar was not triggering inflation, adding economies without the pegged system also face inflationary pressure.
"Hong Kong's linked exchange rate system has been working well for almost 30 years. With this system, we have overcome many challenges over the years. If we intend to change the system at this moment, it will attract speculators to Hong Kong, causing more uncertainties and financial risks.
"A stable exchange rate is crucial to Hong Kong because it heavily relies on trade. Any unfavorable changes will cause adverse impact to the city's economy."
There is no room for de-linking Hong Kong's currency from the U. S. dollar at this stage, Tsang said, adding the city may consider the issue when the renminbi becomes freely convertible and the Hong Kong dollar can be pegged to the renminbi.
