speeches 25 aug 2022 welcome remarks at the hkimr - adb - bis joint workshop on " monetary policy spillovers " edmond lau, deputy chief executive, hong kong monetary authority 1. good morning, mr park ( chief economist and director general of the economic research and regional cooperation department, asian development bank ( adb ) ), mr zhang ( chief representative for asia and the pacific, bank for international settlements ( bis ) ), ladies and gentlemen. it is my pleasure to welcome you to this workshop on monetary policy spillovers, jointly organised by the adb, the bis and the hong kong institute for monetary and financial research ( hkimr ). we are honoured by the impressive list of panellists, discussants and speakers today, who will share their expertise on this timely and important topic. 2. since early this year, central banks around the world have tightened monetary policy to fight raging inflation, with the us federal reserve ( fed ) being particularly assertive as it tries to cool down the unwelcome rise in inflation and avoid inflation expectations from getting de - anchored. as global financial conditions tightened, financial markets rattled and many emerging market economies ( emes ) experienced capital outflows given their narrowing interest rate differentials against the us. the crux of the latest situation is, will such gyrations in asset prices and capital flows pose a threat to emes ’ financial stability? 3. as far as emerging asia ( em asia ) is concerned, the latest situation does not seem too bad. even though the region saw quite notable bond fund outflows since the fed began to raise rates in march, such outflows have yet to cause any significant disruptions. that being said, there is no room for complacency. for one, as the global economy is heading towards a growth slowdown, if not an outright recession, asian emes may be less able to look for support from external demand to cushion the effect of tighter global financial conditions. moreover, capital outflow pressures faced by the asian region may persist, leaving em asian currencies and fx reserves to bear the brunt of global tightening. 4. unfortunately, there are limits as to how much these shock absorbers can shield the domestic economies from tighter global financial conditions. in particular, even though exchange rate flexibility can be a useful shock absorber, research suggests that currency depreciation is not a panacea for cushioning the impact of us rate hikes. as a

in balance. there are now global factors that could cast a shadow over the strong growth outlook. first, the new trade measures announced by the us administration. ecb estimates indicate that the first - round effects of the proposed measures for the euro area are likely to be slight, even in the event of retaliation by us trading partners. the after - effects however could be stronger. second, developments in the foreign exchange and other financial markets. in this respect, i would like to point out though that the most recent volatility on stock markets had little impact on other asset classes in the euro area. the strong economic growth is also having an impact on the labour market. the increase in employment since mid - 2013 – almost 7. 5 million jobs – has offset the total number of jobs lost overall during the crisis. the unemployment gap – a measure of labour market overcapacity – now seems to have closed, although it has again been revised downwards, and employment in 1 / 5 bis central bankers'speeches the euro area is higher than it has ever been. in short, our monetary policy has successfully boosted demand and returned slack resources back into productive use. in view of this, the path of inflation should, over the medium term, approach our inflation objective of below, but close to, 2 %. and inflation is acceletating, albeit more slowly than we would like, but more clearly than expected in october, when we decided to scale back the purchases. the increase in trust that inflation is on the right path will also influence our reaction in the future. two additional factors play an essential role here : the first has to do with the declining impact of our net purchases over time. the holdings are becoming steadily more important than the growth. the second factor relates to the link between output and inflation. in the past, a highly expansionary policy was needed to counter the economic downturn and to ensure that inflation remained consistent with our definition of price stability. headwinds reduced the effectiveness of our monetary policy and they had to be resisted. for example, deleveraging caused a greater inclination to save, the general uncertainty dampened investments and a long period of low inflation threatened to de - anchor inflation expectations. in addition, deflation was a real risk. these negative factors have eased during the ongoing recovery. deflation fears have been dispelled. and the assumption is that, under these circumstances, a policy of unchanged monetary policy is unduly expansionary. in addition,