HONG KONG, Nov 17 (Reuters) - Hong Kong's chief central banker warned on Tuesday of the risk of asset bubbles forming in Asia as a result of excess liquidity globally and questioned whether quantitative easing needed to be so massive.
"In Asian economies, Hong Kong included, we've seen very massive inflows of funds due to very low global interest interest rates and quantitative easing," Norman Chan, Chief Executive of the Hong Kong Monetary Authority, told an investor conference, adding that loose monetary policy risks creating asset bubbles in Asia.
"My question is: (while) quantitative easing is necessary, is the amount right?
"$2 trillion is a lot," Chan said, referring to the U.S. Federal Reserve's quantitative easing programme.
Hong Kong Chief Executive Donald Tsang in the past week has also warned that very loose U.S. monetary policy is promoting use of the dollar for carry trades and leveraged capital flows that are raising the risk of asset bubbles in Asia. [ID:nSIN166732]
However, Janet Yellen, president of the Federal Reserve Bank of San Francisco, participating in the same event as Chan in Hong Kong, dismissed the idea that U.S. quantitative easing was aggravating the risk of bubbles forming in Asia.
"Even if we had not used a quantitative easing policy, I believe the impact of our monetary policy on Asia would be the same," Yellen said. She added that the U.S. Federal Reserve was closely monitoring U.S. asset prices and could not maintain loose policy for too long. [ID:nLH628711]
Hong Kong tracks U.S. monetary policy because its currency is pegged to the dollar. Very low U.S. interest rates have triggered a surge in capital inflows, pushing prices of luxury property in Hong Kong up more than 40 percent this year while the stock market has rallied more than 50 percent.
"So there is the potential risk of an asset bubble," Chan said. "I'm not saying an asset bubble is forming at the moment."
However, the currency peg was still justified, he said.
"The Hong Kong dollar peg has served Hong Kong well," he said. Property prices in other Asian cities were also rising sharply and gains in Hong Kong's stock market were only in line with other equity markets in the region, he said.
"There will be other instruments we can use to mitigate the risk," he said. "It is highly justified for us to continue to maintain the linked exchange rate system." (Reporting by Susan Fenton, Editing by Ron Askew) (susan.fenton@thomsonreuters.com; +852 2843 6367; Reuters Messaging: susan.fenton.thomsonreuters.com@reuters.net)