The U.S. Federal Reserve’s pledge to keep interest rates low through at least late 2014 creates a risk of hyperinflation in Hong Kong, said Jaspal Bindra, Standard Chartered Plc (STAN)’s chief executive officer for Asia.
Hong Kong’s currency peg to the dollar means it won’t be able to counter an increase in growth and inflation that’s already high because of China, Bindra said in a meeting with journalists today during the World Economic Forum in Davos, Switzerland.
“It will have a very profound impact in Hong Kong,” he said. “If you have near-zero interest rates when their inflation is at over 6 or 7 percent given the China effect, and their growth is, also thanks to China, at 6 or 7 percent, you’re looking for hyperinflation.”
The policy-setting Federal Open Market Committee this week voted to extend its pledge to keep interest rates low until at least late 2014, compared with a previous date of the middle of 2013. Fed officials lowered their forecasts for economic growth and price increases this year and in 2013 and set a long-term goal of 2 percent inflation.
Bindra, who is based in Hong Kong, said that the Fed’s policy could make dollars scarcer in markets like Indonesia and South Korea, where local-currency interest rates are higher.
“There will be a higher premium on dollar borrowing from the clients’ point of view, which will just make the liquidity even scarcer than it is today in those markets,” he said.
Standard Chartered is based in London and earns most of its profit in emerging markets. The bank trimmed its full-year revenue-growth forecast last month because of Asian currencies’ depreciation against the dollar and said it planned to hire 2,000 people.
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