This should not be surprising as the global FX market has become much bigger, with the average daily turnover in 2013 (USD 5.3 trillion 3) three times bigger than in 2004. Challenging times 15. As close partners, we have also faced significant challenges during difficult times in the past decade. 16. We all remembered vividly how a large part of the financial markets had almost come to a standstill after the collapse of Lehman Brothers in September 2008. Yet, the foreign exchange market continued to operate smoothly. Many market players had attributed the market stability to the support provided by CLS. 17. I also believe that our linkage with CLS has also provided the functional resilience and, importantly, confidence, that our market players needed in those critical moments. 18. This is certainly the case post Lehman’s collapse, as Hong Kong’s companies and individuals liquidated overseas assets and repatriated $ billion back into Hong Kong to tide themselves over the liquidity and credit squeeze. Looking forward 19. It is no exaggeration to say that CLS is now one of the most important pieces of infrastructure supporting the global financial market. The creation of the CLS Bank is also a shining example that demonstrates the power of private sector-public sector collaboration. The HKMA is proud to be part of that success story. 2  CLS reports both sides of an FX transaction.
Does that imply that consumers would shrug off a downturn in the housing market? Not necessarily. The rise in house prices has meant that households have taken on a lot of debt, and higher interest rates will mean they have less money to spend on other things. While there are few signs of obvious financial stress at current interest rates, given the strength of the current jobs market and the current housing market, this could change, especially if several of these factors weakened at the same time and the economic climate deteriorated sharply. That’s a long way from our central forecast, but uncertainty about how consumers might react to higher interest rates has been an important reason for tightening policy gradually since last November. We have also avoided springing surprises. I think that’s important: people are more likely to believe what we say, if our behaviour is reasonably predictable. But we wouldn’t be doing our job if we didn’t constantly revise our views in the light of new information and new research. That is why every month has to be a fresh decision. And why I can honestly say that I don’t know, any more than anyone else, where rates will be in a year’s time. Compared with a year ago, interest rates have risen from 3.5% to 4.5%. But the international outlook is clearly stronger now, the domestic economy is buoyant, and inflation remains low.