The Hong Kong Monetary Authority's seven-point package of currency board reforms might undermine the market's confidence in the linked rate system, Secretary for Financial Services Rafael Hui Si-yan conceded yesterday.
In a written reply to legislator Sin Chung-kai, Mr Hui said there were advantages and disadvantages to the seven technical measures.
He said they would reduce interest-rate volatility, but could be misinterpreted by the international financial community as showing Hong Kong was unwilling to bear the pain of rising interest rates under the currency board discipline.
'This would in turn undermine the market's confidence in the linked exchange rate,' he said. 'Moreover, there could be greater volatility in the level of official foreign reserves.' To avoid such misinterpretation, the Government had to delay implementation of the measures until after its stock market intervention in August, he said.
The measures might also dampen foreign-exchange market activities, he added.
