The Chief Executive of Hong Kong Monetary Authority, Eddie Yue, on Thursday said he expects the local currency to remain weak as the interest rate gap between the Hong Kong dollar and the greenback widens further.

He was commenting on the US central bank's decision overnight to raise borrowing costs by three quarters of a percentage point.

Yue told reporters that local borrowing costs have remained the same while the Fed has now raised rates by 150 basis points, following two earlier hikes.

“As the US interest rates raise again, there will be incentive for market participants to conduct carry trade,” he said.

“When the interest rate deferential is sufficiently wide, that will naturally drive funds to gradually flow from the Hong Kong dollar to the US dollar. So it’s normal for the Hong Kong dollar to remain on the weak side of our trading band.”

Meanwhile, Financial Secretary Paul Chan said that thanks to the dollar peg, Hong Kong has a strong buffer to defend the local currency against any capital outflows.

However, he added that the city's exporters may see difficult times ahead.

“This high inflation rate will be there for quite some time so the US will continue to increase its interest rate and reduce the size of its balance sheet,” he said.

“So the impact… from a global standpoint would make the economic situation externally deteriorate, perhaps making it more difficult for us in terms of exports.”