As regards the MPR, the baseline scenario uses as a working assumption that it will follow a trajectory comparable to the one assumed in the various expectations indicators. This ensures that monetary policy will remain expansionary throughout the projection horizon. As always, the implementation of monetary policy and any possible adjustments to the policy rate will be conditional on incoming information and its effects on the projected inflation dynamic (figure 13). On the external front, although the market anticipates an increase in the fiscal impulse in the United States, with planned infrastructure works, tax cuts and measures generally intended to boost growth, their details are still unknown, as is the time it will take to carry them out. In that sense, there is the possibility of a significant fiscal package that results in higher economic growth in the US and the rest of the world. However, another possibility is that the impulse disappoints and financial markets deteriorate, ending up in dominating negative effects. The US inflation outlook also poses risks, as it could precipitate a more aggressive behavior of the Fed. For now, after the meeting of last week, the Fed announced a slightly faster withdrawal of the monetary stimulus. The effects of potential protectionist measures on world activity and trade has to be considered as well. All this, with Brexit’s effects still in the dark and with several major European economies preparing election processes. Plus doubts surrounding the soundness of some European banks.
We also continue to monitor and improve our system of banking supervision, in recognition of the fact that one reason we did ride out the Asian financial crisis was undoubtedly that banks were strong. Some observers have suggested throwing some sand in the wheels of international finance. By limiting capital flows, the argument goes, it becomes easier for central banks to maintain monetary and financial stability in turbulent times and to cope with the potency of international finance that comes with globalisation. Indeed, control in one form or another has become quite popular in this region. But, for an international financial centre such as Hong Kong, whose main source of income stems from an ever-growing economic and financial integration with the rest of the world economy, such a policy is, to us, clearly undesirable. Moreover, the Basic Law of Hong Kong also bars any foreign exchange control policies and any restrictions on the free flow of capital within, into and out of Hong Kong. Others suggest that the Hong Kong economy would be better able to withstand economic shocks and disturbances if the currency board was adjusted or gave way to something else: different observers have different pet ideas and there seems to be no agreement on what that alternative would be. I have spoken a great many times on this topic and I do not propose to do so again today.