Budget Speech

Strategy for Fighting Inflation

41.      Fighting inflation is our major task this year. As Hong Kong is an externally-oriented economy with a linked exchange rate system, we cannot use interest rate as a tool to contain inflation and are therefore relatively passive in this respect. In general, other economies in the region are also facing inflationary pressure, despite the different exchange rate systems they are using. In the short term, the Government will strive to ease the domestically generated price pressure by forestalling property market exuberance, preventing excessive credit growth and pursuing a prudent fiscal policy.

42.      In the face of surging food prices, we will continue to diversify the sources of our food imports. This year, one of the key policy directions of the Mainland is to contain inflation and manage inflation expectations. Hong Kong will be able to fight inflation more effectively if the Mainland’s inflation is brought under control.

43.      In the medium to long term, we must keep enhancing our productivity to alleviate the inflationary pressure. In the next few years, the Government will continue to invest heavily in infrastructure, thus increasing the capacity and efficiency of our overall economy. These efforts will not only promote economic development and provide job opportunities, but also help reduce the risk of hyperinflation in the medium to long term.

44.      Regarding macroeconomic management, we will adopt a counter-cyclical fiscal strategy to contain the growth of government expenditure. To maintain monetary stability, we will continue with macro-prudential regulation to strengthen credit risk management of the banking system. Now I will turn to our new programme to issue inflation-linked retail bonds.

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