As a consequence of the fixed exchange rate between the Hong Kong dollar and the US dollar, local policy interest rates are determined largely by the Federal Reserve (the US central bank) rather than the Hong Kong Monetary Authority (HKMA, which performs many of the functions of a central bank). This will cause problems in 2011, as interest rates will be very low despite rapid economic growth. There are fears that low rates could lead to a surge in money supply and credit issuance, which in turn might mean that asset prices continue to rise (notably in the stockmarket and the property sector) or might lead to broader inflationary pressures. The authorities may take steps to mitigate this threat; for example, the HKMA could make prudential standards for financial institutions more exacting, as a means of "shadow" monetary tightening. US interest rates are expected to rise rapidly from late 2012, and, given that the HKMA has already voiced concern about the risk of outflows, this is likely to mean that rates in Hong Kong will follow suit. We expect this, combined with tighter monetary conditions in mainland China (where inflation is already perceived as a major problem), will lead to a contraction in local credit issuance in 2012-13. Monetary policy on the mainland will have an increasing impact on Hong Kong, given the growing role of China's renminbi in the Hong Kong financial system.