G.F. 323
CONFIDENTIAL # 機密
Interest rates and bank deposits
38.
18.
During the second half of 1974 and the first quarter of 1975
there was an inflow of funds and an increase in the money supply as a
result of successful efforts to offset upward pressure on the exchange
rate. Partly to assis. this effort and partly because of a lack of
demand for loans, interest rates paid by the banks were gradually
reduced during the second half of 1974 and into the first quarter of
1975. Interest rates stayed constant at the low levels fixed on 12
March 1975 until 3rd August 1976 when they were further lowered to
maintain the differential between Hong Kong rates and declining world
interest rates and to avoid further pressure on the exchange rate.
This pressure on the exchange rate was the consequence of the strength
of the Hong Kong economy and an apparent increase in the retention of export earnings in Hong Kong dollars. In addition the growth of alter-
native sources of lending from the finance houses must have had some
effect on the interest rate structure.
39.
As interest rates were lowered, savings deposits became more
attractive than time deposits becruse the interest raid on time deposits
after deduction of interest tax was probably no longer high enough to
For justify the loss of liquidity involved in holding time deposits.
in Hong Kong savings accounts are close substitutes for current accounts
and are therefore very liquid. In the third quarter of 1974 when interest
rates were at their peak levels, time deposits were 46% of total deposits.
The decline in interest rates brought the proportion down to 39% in the
senond quarter of 1975. During the same period, the proportion of savings
As a result of the deposits to total deposits increased from 25% to 34%.
further lowering of interest rates in August 1976, the proportions of time
deposits and savings deposits at the end of 1976 were respectively 37% and 36. Demand deposits represented around 26% to 27% of total deposits
throughout 1975 and 1976.
Tables 19 and 20 J
CONFIDENTIAL
機密