Interest rates may be about to reach a plateau, but it does not look like a peak is forming yet, Monetary Authority Chief Executive Joseph Yam says.

Comparing interest rate trends to hiking, Mr Yam said a hiker can only climb down after reaching a peak, while on a plateau, he can take a breather, survey the surroundings and then decide whether to stay on the trail, find a way down or head for higher ground.

For the time being, it looks like the ground will soon level off, but it does not look like a peak, he said. There is a possibility the climate may deteriorate when on the plateau, forcing the hiker to quickly climb down and seek shelter.

In his Viewpoint column published today on the authority's website, Mr Yam said as interest rates have returned to their "normal" levels, borrowers' interest outlay has become more significant than before.

Although, given the general robustness of the economy, the burden of interest payments should still be manageable for most, borrowers obviously will not welcome further increases in that burden, he said.

Trend prediction difficult

Mr Yam pointed out Hong Kong's situation is more complicated than in many jurisdictions, where central banks have discretion to determine interest rates. Some set them according to the economy's needs, others set them in accordance with a well-defined quantitative target for monetary policy.

For Hong Kong, he said there is no doubt the monetary policy objective of a fixed-exchange rate is most suitable, but it does present greater difficulties for trend prediction.

Apart from having to understand the formulation of monetary policy in the United States, people need also  understand the structural characteristics of Hong Kong's own monetary system, Mr Yam said.

Although there is a close, long-term relationship between Hong Kong dollar and US dollar interest rates, he warned there can in practice be sharp, short-term deviations arising from short-term flows of funds in and out of the Hong Kong dollar.

"With so much focus on the renminbi and the occasional questions about the long-term, future relationship between the Hong Kong dollar and the renminbi, these flows may be quite large," he said.

Views help anchor expectations

Mr Yam regards it as a responsibility of monetary authorities to offer their views when necessary, to guide the money market in a direction consistent with monetary policy, to inject a degree of objectivity among those wishing to make predictions, or to 'anchor expectations'.

"These are the purposes of the occasional comments from me or my colleagues in the authority on interest rates and indeed on other subjects where we think risks require greater attention if general financial stability is to be maintained," he explained.