Financial Secretary John Tsang and Monetary Authority Chief Executive Joseph Yam have welcomed the International Monetary Fund's support for the Government's measures to stabilise the financial system and the linked exchange rate.

The IMF backed the Government's move in the Preliminary Conclusions of the IMF Mission published today, following the 2008 Article IV consultation discussions.

Slowing economy

The mission forecast the growth of Hong Kong's economy will fall to 2% next year amid a global financial crisis of exceptional proportions. Consumer price inflation will fall below 3%, it said.

Over the medium term an underlying growth rate of 5% is feasible, while much will depend on the trajectory of economic and financial integration with the Mainland and how those interdependencies are managed.

The mission said Hong Kong's financial system has performed well and without significant dislocation, attributed to the Government's efforts to establish a more robust system of financial supervision and regulation, and a sophisticated financial infrastructure.

The mission commended the regulatory authorities for their ability to enhance supervisory activities in recent months, substantial attention to contingency planning and continued willingness to explore areas for improvement.

Mr Tsang said: "We are mindful of the challenges stemming from the severe economic and financial environment. We will strive to uphold our principle of fiscal prudence in managing public finance while continuing to adopt measures to help those in need."

Fiscal foundation

The mission backed the linked exchange rate system, which is a simple and transparent arrangement anchoring the monetary and financial stability of Hong Kong for the past 25 years.

The mission said the Monetary Authority's measures to increase the attractiveness and flexibility of its liquidity support facilities under extraordinary circumstances have begun to restore the workings of local interbank markets, although term lending has yet to normalise.

Mr Yam said: "We welcome the mission's support of our various pre-emptive and precautionary measures. The banking system remains strong and robust. We will continue to monitor closely the global financial markets and take measures to safeguard financial stability."