Arthur Yuen: Remarks Discussant´s remarks by Mr Arthur Yuen, Deputy Chief Executive of the Hong Kong Monetary Authority, at the AMPF 2021 and MAS-BIS Conference on Macro-Financial Stability Policy, 28 May 2021. * * *  Opening 1. It gives me great pleasure to share my views on Hong Kong’s experience in the use of macroprudential measures to safeguard financial stability. I am grateful to Mr (Robert) McCauley and Professor (Catherine) Schenk for their research efforts, and their recognition of the effectiveness of the macroprudential measures implemented by the Hong Kong Monetary Authority (HKMA) since the 1990s. The importance of macroprudential policies 2. Today’s discussion on macroprudential policies is timely considering recent market developments. The accommodative monetary policies adopted by major economies in response to the COVID-19 health crisis have provided renewed impetus to rising property and asset prices in many markets. How to rein in asset price inflation and prevent it from endangering financial stability in the event of an abrupt price adjustment is a topical issue within the central banking community. 3. As mentioned in Robert and Catherine’s joint paper, the HKMA’s macroprudential measures on mortgage lending were first introduced in 1991. They have helped Hong Kong weather several crises including the Asian Financial Crisis, during which property prices plunged by as much as 70% between 1997 and 2003. Being an early adopter, we are encouraged to see that macroprudential measures have gained wider international acceptance after the Global Financial Crisis (GFC).
Many jurisdictions have implemented macroprudential measures similar to those in Hong Kong, including loan-to-value ratio (LTV) caps and stress testing on the mortgagor’s ability to cope with interest rate rises in terms of their repayment ability. Challenges and mitigation: calibration of macroprudential policies 4. I would like to take this opportunity to share our experience gained since the GFC in operating our macroprudential measures on mortgage lending. My remarks would focus on what I call the “4Cs”. 5. Calibration: Driven by the low interest rate environment and limited housing supply, residential property prices in Hong Kong continue to grow since the GFC. This has posed increasing risks to financial stability in Hong Kong. In response, the HKMA implemented 8 rounds of tightening of the macroprudential measures from 2009 to 2017. Unlike monetary policies, there has been far limited literature on how macroprudential measures should be calibrated with respect to changes in asset price levels. The complex dynamics underlying the property market in Hong Kong has made it very difficult, if at all possible, to develop an ex ante framework governing how the HKMA should operate its macroprudential policies. So, what we have done is to tread extremely carefully in each round of adjustment. The HKMA has established a cross-departmental committee to regularly review whether the prevailing macroprudential measures would need to be adjusted, taking into account a host of factors including the property price trend, transaction volumes, domestic economic fundamentals and the external environment.