Standard Chartered Sees Hyperinflation Risk for Hong Kong
Standard Chartered Plc CEO For Asia Jaspal Bindra
Jerome Favre/Bloomberg
Jaspal Bindra, Standard Chartered Plc's chief executive officer for Asia.
Jaspal Bindra, Standard Chartered Plc's chief executive officer for Asia. Photographer: Jerome Favre/Bloomberg
Jan. 16 (Bloomberg) -- K. C. Chan, Hong Kong's secretary for financial services and the treasury, talks about the city's economy and financial market. Chan also discusses China's economy and Europe's sovereign debt crisis. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
U.S. Federal Reserve Chairman Ben S. Bernanke
Joshua Roberts/Bloomberg
Ben S. Bernanke, U.S. Federal Reserve chairman, laid the groundwork for a third round of quantitative easing through asset purchases saying that the Fed is prepared for further “accommodation.”
Ben S. Bernanke, U.S. Federal Reserve chairman, laid the groundwork for a third round of quantitative easing through asset purchases saying that the Fed is prepared for further “accommodation.” Photographer: Joshua Roberts/Bloomberg
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.
A currency peg to the dollar means the city won’t be able to raise benchmark borrowing costs as China’s expansion fuels growth and price gains, Bindra told journalists on Jan. 27 at 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.”
Bindra’s view contrasts with those of analysts from Royal Bank of Scotland Group Plc. and Australia & New Zealand Banking Group Ltd., who said last week that Asian officials would be less concerned about U.S. monetary stimulus than in 2010, when it was blamed for spurring capital flows to the region. Asian officials are shifting focus from inflation and asset bubbles to growth as Europe’s debt crisis threatens exports and dims the outlook for the world economy.
‘Very Different’
K.C. Chan, Hong Kong’s financial services secretary, said on Jan. 28 that while past U.S. easing caused bubbles, “this year’s economic situation is very different -- many countries and economies are facing economic difficulties.”
The policy-setting Federal Open Market Committee voted last week to keep interest rates low until at least late 2014, compared with mid-2013 previously. 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.
Fed Chairman Ben S. Bernanke laid the groundwork for a third round of quantitative easing through asset purchases, a so-called QE3, saying that the Fed is prepared for further “accommodation.” Officials in China and South Korea were among those who criticized QE2, when they were raising interest rates in part to stem property and stock price surges.
Hong Kong consumer prices rose 5.7 percent in December from a year earlier on food and rental costs. Excluding distortions from temporary government subsidies, the rate was 6.4 percent, unchanged from the previous month, a record high for data that began in 2007. The economy grew 4.3 percent in the third quarter from the same period in 2010.
House Prices
Fourth-quarter data is due this week when the government announces the next budget.
Housing prices have been slipping in the city from June’s 14-year high. DBS Bank Hong Kong Ltd., a unit of Southeast Asia’s largest lender, says that unemployment may be set to climb, based on past links between changes in home values and the jobless rate.
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.
To contact the reporter on this story: Christine Harper in Davos, Switzerland, on charper@bloomberg.net
To contact the editor responsible for this story: Otis Bilodeau at obilodeau@bloomberg.net
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