Let us not forget the fact that the link has served Hong Kong well in the last 14 years by providing an anchor for monetary stability, without which it would not have been possible for Hong Kong to weather numerous shocks during this period and to develop into a leading financial, trade and services centre in the region, with a per capita income higher than many of the developed economies, including the United Kingdom. Even in the latest regional currency turmoil, the link has once again proved its resilience and the Hong Kong dollar has remained very stable against the US dollar. However, questions or doubts have emerged on whether the price for maintaining the link is too high for Hong Kong. 3. This leads me to my next point. Is the price for maintaining the link too high for Hong Kong? The higher interest rates resulting from the defence of the $ under the currency board arrangement are causing some pain, especially on the asset markets and on the finance costs for doing business generally. It is true that, under the currency board mechanism, when the $ is under speculative selling pressure, local interbank interest rates may go up sharply, as they did on 23 October. On 24 October, the major banks raised their best lending rate by 75 b.p. to 9.5% in view of the rising funding costs.
Dimitar Radev: Spillovers from the ECB’s monetary policy decisions are fast and strong Statement by Mr Dimitar Radev, Governor of the Bulgarian National Bank, for the IFLR Yearbook: Global Banking & Financial Policy Review 2019/2020, published on 24 September 2019. * * * There is much discussion these days about the course of monetary policy in the euro area. What global headlines rarely catch, however, is how such policy affects the European economies outside the euro area. Bulgaria is an example where, due to the high openness of our economy and the strong financial links with the euro area, spillovers from the ECB’s monetary policy decisions are fast and strong. Around 50% of Bulgaria’s exports go to the euro area. Investors from the euro area account for 67% of our FDI stock. Our banking system is dominated by the presence of euro area owned banks, which hold around 55% of the sector’s assets. The monetary policy regime in Bulgaria (a currency board with the national currency fixed to the euro) is another factor enhancing the direct transmission of ECB’s monetary policy. Therefore, even though Bulgaria is not a member of the euro area yet, it is important to consider how our economy is affected by the ECB’s continued accommodative stance. Financial stability and its implications are issues to be potentially concerned about. The ECB’s monetary policy in recent years has succeeded in sustaining the economic recovery in the EU following the great financial crisis.