Expensive pataca to boost inflation and imports

A stronger pataca this year is envisaged by some experts and observers as not only encouraging more Macau residents to travel abroad but has wider implications for the local economy – it could help offset the soaring consumer prices of recent years and benefit the territory’s trade in goods, which now mostly relies on imports.
The euro has fallen to its lowest since 2004 against the US dollar – at US$1.11 on January 23 – after the European Central Bank unveiled a landmark quantitative easing plan involving the buying of 1.1 trillion-euro (US$1.25 trillion) assets to boost the economies of the 19 euro members. But the greenback has already gained momentum since early last year on the back of the US economic recovery and the tapering of its bond-buying programme which once pummelled the currency.
Indirectly pegged to the US dollar through the Hong Kong dollar at MOP1 to HK$1.03, the pataca has jumped on the bandwagon. The trade-weighted effective exchange rate index of the pataca – a gauge of the rates of the city’s currency against its major trading partners – reached an average of 98.12 in 2014, increasing 0.6 per cent from 2013, the Monetary Authority of Macau said, the highest level last seen in 2010.
Jack Chang Chak Io, vice-president of the Macau Association of Economic Sciences, believes that the city’s currency could remain on the upside this year with the US dollar, reasoning: “It’s expected the US Federal Reserve will soon raise interest rates; on the other hand, the economy of the euro zone will remain weak and the fluctuations in the yuan will continue.”
“A weaker yuan [against the pataca] also eases the inflation here as the Mainland [China] is the major import source of the daily necessities and goods in Macau,” he said. The pataca strengthened against the yuan by 1.87 per cent year-on-year to RMB100 per MOP129 as at the end of 2014, against the backdrop of a recovering US economy and the deceleration of growth on the Mainland.
The full story can be read in this month’s issue of Macau Business magazine, available at newsstands and online at www.magzter.com.