The argument was rather that the economy could suffer a deep recession in the long term if developments led to a bubble arising which then burst. 9  ECB (2009). 10  IMF (2009). 11  Borio and Lowe (2004). 6  BIS Review 162/2009  The economists Francesco Giavazzi and Frederic Mishkin expressed concern in their assessment of Swedish monetary policy between 1995 and 2005 that the Riksbank had given too much consideration to house prices. 12 However, monetary policy that entails flexible inflation targeting – like that conducted in Sweden – has the aim of stabilising inflation around the inflation target and also resource utilisation. This means that temporary deviations from the inflation target may be motivated if the inflation target is attained in the longer term. This was also the assessment made by the Riksbank. House prices in Sweden rose by 3 per cent between the second and third quarters of this year, after a slowdown in 2008 and the average price increase since 1996 has been around 8 per cent a year. The question is whether this is a sustainable long-term development. There may be risks with this, even if the upturn is not as large as in some other countries which have recently experienced downward adjustments. Developments in the housing market in Sweden also differ in that new construction has been considerably lower than in a number of other countries.
This move by the HKMC to issue USD denominated bonds fits very well into the efforts by the Hong Kong Monetary Authority to promote the development of a safe and efficient financial infrastructure for Hong Kong, based on a multi-currency, multi-dimensional platform. In Hong Kong’s banking system, we have around $ trillion in HK Dollar deposits. Our banks also have the equivalent of over $ trillion in foreign currency deposits. About 70% or $ billion are US Dollar deposits. The loan-to-deposit ratio for Hong Kong Dollar deposits is 87%; the equivalent for US Dollar is only around 26%. We reckon that a significant portion of the sizable US Dollar deposits is held by retail investors and some would wish to diversify and look for investment products to increase their return. One could of course look for opportunities overseas but, as an international financial centre, Hong Kong should also try to provide more such investment products locally. In the past there have been very few local issues of US Dollar retail bonds, and the most recent one appears to have been issued as far back as in September 2003. Today’s HKMC US Dollar bond issuance would help to meet part of such investment demand. Perhaps in times to come there will be more foreign currency bond issuance in Hong Kong. This bond issuance would add to the diversity of financial intermediation channels and complement the HKMA’s effort to promote the development of a multi-currency, multi-dimensional financial system in Hong Kong.