Hong Kong dollar interest rates will rise if the market's expectation on using the Hong Kong dollar as a proxy for a long position in the Renminbi has changed,Monetary Authority Chief Executive Joseph Yam said Thursday.

In his latest Viewpoint column posted on the authority's website, Yam said currently the interest rate differential at the short end (for short-term Hong Kong dollar deposits and US dollar deposits) is nearly two percentage points.

He said the main reasons for the difference are the continued weakening of the US dollar, the prospects of the Renminbi exchange rate strengthening when eventually more flexibility is introduced in the exchange rate policy of the Chinese mainland, and the recovery of the domestic economy.

He said the mainland's exchange rate reform is a long-term issue and there is doubt about whether it will be undertaken at a time when "macro adjustment and control" is in progress.

"Some would argue that the opportunity should be taken to use the exchange rate as an additional instrument for adjustment. Thisis not impossible, but I have doubts about the advisability of tackling additional complex structural issues at this time."

"It will, I fear, take a little time for this reality to sink in and for the consequent outflow from the Hong Kong dollar to materialize, as it did earlier this year, with the Aggregate Balance declining from 55 billion HK dollars (7.05 billion US dollars) to 3 billion HK dollars (385 million dollars)," said Yam.

"But it will come, and when it does, Hong Kong dollar interest rates will rise," said Yam.

Source: Xinhua