Eddie Yue: Hong Kong – challenges and opportunities ahead Speech by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong Institute of Bankers Annual Conference 2012 “The year of transformation – heading into a new era”, Hong Kong, 13 September 2012. *  *  *  Financial Secretary, Patrick, distinguished guests, ladies and gentlemen, Good morning. It’s my great pleasure to be here at the fourth Annual Conference of the Hong Kong Institute of Bankers. The conference title behind me talks of “Heading into a New Era”. That’s a grand and ambitious statement. But, I believe, a fair one. The opportunities ahead for the banking sector are vast, particularly in terms of the offshore renminbi (RMB) market and asset management services. Today I’d like to discuss with you the reasons for my optimism. In doing so, I will detour slightly through some of the policy, regulatory and organisational priorities I think we will all need to work on. To start out, though, I should first acknowledge that, as with any journey, the travelling may not always be smooth. There is likely to be some occasional turbulence. I’m referring, of course, to the external economic challenges. So let me start there. The challenges It has now been five years since the start of the global financial crisis. Yet low growth and high volatility remain key features of the global economy. So much so that some commentators have asked whether these represent “the new normal”.
Nor can it be ruled out that the external scenario will see a reduction in global cost pressures and inflation easing in most 6  economies, including Chile. In this case, the Fed's monetary policy response would be less restrictive than in the central scenario, which would give way to better financial conditions, a less appreciated dollar globally, and lower external inflationary pressures (figure 14). The central scenario projects that the pace of price increases will decrease in the coming months and that annual inflation will begin to decline. However, the risk of a much more persistent inflationary phenomenon is a concern for the Board. If materialized, it could lead to further monetary tightening, outside the upper limit of the MPR corridor. This risk is especially important in a context where inflation has been unexpectedly high for several quarters and inflationary expectations remain above 3% in the two-year horizon. Quickly recovering macroeconomic balances will help reduce this risk, while allowing the Chilean economy to appropriately address a further deterioration of the external scenario. Final remarks Our country is facing many important challenges. One of the most relevant macroeconomically is to reduce inflation, a problem that is putting a heavy burden on all of us. For more than two decades, inflation was not a matter of public concern and there were generations to whom it may have seemed an unknown issue. But in recent quarters it has become a complex issue, which is at the heart of our responsibility as an institution.