Monetary Authority Chief Executive Joseph Yam has urged all economic units, particularly those in the financial system, to prudently manage the risks associated with economic cycles.

In his weekly Viewpoint column published today, Mr Yam said under Hong Kong's monetary system, changes in monetary aggregates and interest rates are not determined by the city's policy actions, but rather by those in the US, taking into account the reactions of the participants in the city's financial markets.

"It is thus inevitable that when the monetary policy in the United States - currently manifested in low interest rates - is temporarily not entirely suitable for our economic circumstances, cyclicality in our domestic economy may be exacerbated. 

"If this happens, it is necessary for us (all economic units, but most importantly those in the financial system) to prudently manage the risks associated with economic cycles that might be larger than we would like."

Banks capable of taking risks

Mr Yam said he is confident that Hong Kong banks are capable of this very fundamental task of banking - taking risks and managing them - through economic cycles, with or without encouragement from the banking supervisor.

"This is of course not to say that extensive cyclicality is something that we welcome. Public policies designed to assist those who are financially disadvantaged by or unable to cope with economic cyclicality can be pursued, if the state of the public finances allows the Government to do so.

"But there is a limit to what we can pursue to limit cyclicality in a highly externally oriented economy. The policies also need to be carefully targeted. For example, additional government spending may be inflationary."

Mr Yam said people must live with economic cyclicality, and Hong Kong has done so in the past with flying colours.