Economic adjustment and financial reform on the Mainland will continue to have important implications for Hong Kong in 2005, so too will the depreciation of the US dollar now in progress, Monetary Authority Chief Executive Joseph Yam says.

Nevertheless, he is confident that there will be a soft landing, with growth in the economy, fixed investments, money and credit guided to more realistic and sustainable levels.

This augurs well for Hong Kong in terms of the sustainability of the economic recovery, he added.

In his latest Viewpoint article, Mr Yam says Hong Kong's economic outlook depends increasingly on the prospects of the Mainland economy, owing to the increasing economic integration. The success or otherwise of "macro adjustment and control" on the Mainland is also of key importance to Hong Kong.

He noted the intended introduction of exchange rate flexibility on the Mainland would be one event of global financial significance on the horizon. Nevertheless, Hong Kong will be able to cope with this thanks to the city's robust monetary system that has a proven track record.

Mr Yam said the disorderly volatility in the US dollar exchange rate would be another great event, though the weakening of the US dollar has not been disorderly, and it is justifiable given the large current account deficit.

That long-term US interest rates, as indicated by US Treasury yields, have not increased sharply so far is perhaps an indication of a recognition by those concerned of their responsibility in contributing to global financial stability, he added.