HONG KONG (REUTERS) - Hong Kong's economy is entering a potentially testing period with interest rates poised to rise, but the Asian financial centre is well-positioned to weather these challenges, the International Monetary Fund said in a report.
High property prices, which have more than doubled since 2008, faced a possible correction, while higher interest rates could also rein in consumer spending, although the risks were manageable, the IMF said.
The Federal Reserve is widely expected to raise interest rates at its policy meeting on Wednesday, paving the way for a hike in Hong Kong as the city's monetary policy follows that of the U.S. due to its currency peg to the greenback.
The report, which was released Tuesday, said the peg remained the best option for the former British colony and strong buffers also included Hong Kong's strong fiscal management and robust regulatory oversight.
Banks had increased their reliance on stable funding sources and improved the liquidity profile of their assets in recent years, it added.
Hong Kong is increasingly vulnerable to headwinds that now include a slowdown in China, the world's second-largest economy, and broader uncertainty over U.S. monetary policy.
Growth was expected to pick up slightly to around 2.5 per cent next year, the IMF report said, adding that consumer price inflation was expected to ease slightly to under 3 per cent. The government, which has forecast economic growth of 2.4 per cent for this year, has not issued official forecasts for 2016.
"The government will continue to enhance Hong Kong's economic and financial resilience in managing potential market risks and unforeseen external developments," Hong Kong Financial Secretary John Tsang said in response to the report. "Looking ahead, we will continue to capitalise on Hong Kong's unique advantages and seize the opportunities arising from the increasing trade and financial links with the Mainland."